Is the market rigged?

Life of a Trader 4 May 2024

Sometimes when the market is against you, you may feel that the market itself is rigged against you. While that may sound far-fetched, there may be some truth to it. Sometimes the market can be said to be rigged. In this podcast, Vee explains how sometimes the market can really be rigged.

Transcript (abridged):

Hey everyone, welcome to today’s “Life of a Trader” session. We have with us the CIO and founder of TrackRecord. Today, we’ll continue discussing misconceptions about trading, specifically focusing on whether the market is rigged.

That’s an interesting question. I often hear concerns that may sound like conspiracy theories, but it’s actually a valid query. First, we need to differentiate the various levels of manipulation. One easy to avoid is related to the broker platforms we use as our liquidity providers. Years ago, manipulation was quite prevalent, but nowadays, it’s essential to use legitimate and credible broker platforms that are regulated by reputable authorities. Using a small, lesser-known broker increases the risk of the platform being rigged against you, as they are often unregulated and lack accountability.

But what about market-level manipulation? Conventional wisdom suggests that markets are efficient with no manipulation, but over the years, we’ve discovered various levels of manipulation across different markets. Less transparent markets are more susceptible to manipulation, so it’s best to trade in liquid markets with heavy volumes and strong regulatory oversight, like the U.S. stock markets, which are less likely to be manipulated compared to an emerging market stock market.

There are cases of informational advantages leading to manipulation. While less common now due to more accessible information, insider trading and similar activities have been observed. For instance, prominent figures with access to sensitive information have profited from market movements they knew would result from upcoming policies or decisions. This might not be illegal due to lax regulations concerning government employees and politicians, but it does pose ethical questions.

Most people are concerned about manipulation when it causes them to lose money. For example, placing stop-loss orders near well-known levels can lead to them being triggered during low-liquidity periods. Understanding this can help you avoid placing stop losses too close to these levels or adjusting your position size accordingly.

In conclusion, yes, there are various levels of market manipulation, but there are also ways to mitigate these risks. The most detrimental form of manipulation can occur through your trading platform, particularly with instruments like binary options, which are structured to be negative expected value games. The cost of trading such options can deplete your capital over time.

I hope this discussion helps you navigate potential manipulations in the market and informs your trading strategies. As always, stay true to the process, and you will eventually be profitable. Thank you.