Rigging financial markets is a thing that requires two important tools: a chunk of liquidity to absorb trades that are going in an opposite direction, and coordinated actions.
Rigging the biggest financial market in the world, the FX market, one that has 5 trillion dollars traded every day, is a huge task and seems impossible. Yet, nothing is impossible and the recent fine received by UBS from US authorities proves one more time, that trading is not a fair game and some stand to benefit more than others.
Financial markets go through a “clearing” process each and every day and that moment of the day is referred to as “Fixing”.
Throughout the trading day, there are different fixing times depending on the trading session we’re talking about. The most important one is in London as, like it or not, it is the financial center of the world.
During the fixing time, price is attracted to specific levels and most of the time it seems like an invisible hand is pushing markets in a specific direction. Like in trading; the bigger the time frame, the more important the signal. The same goes for fixing times, as the end of the week, the end of the month, and the end of the year are more important than daily fixings.
These daily fixings are said to have been “rigged” by a multitude of banks, starting with Germany and ending with the United Kingdom, and UBS was one of those UK banks.
The huge fine UBS has to pay (almost 600 million dollars), comes after a streak of legal costs that seemed to only increase by the day. Besides these problems, the bigger picture is not favorable for the banking sector either, as the Federal Reserve in the United States is most likely not going to raise rates anytime soon; banks are the ones to be hurt the most.
Based on the above, I am favoring a put option on UBS with the risk associated to be split into two different expiration dates: end of the month (May) and then starting with June another put option with the end of the month (June) expiration date as well.
This way the uncertainty given by the June Fed meeting can be avoided as we head into a bigger expiration date with the same risk. This is because Money Management is more important than the actual trade one is taking.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
