When trading binary options, I am trading my expectations on certain events. I am entering contracts where one side of the contract has an expectation of some event, x, occurring and the other side of the contract has an expectation of some event, y, occurring.
I am not trading a commodity, share, or currency. I am not profiting from the change in value of the commodity, share, or currency. So what if traders bought EUR/USD at 1.1450 and sold the pair at 1.1500. I am interested in the probability that the price gets to 1.1500. Although a trader could make $5.00 from a move to 1.1500, what are the chances that the trader gets to 1.1500?
A retail trader of foreign exchange may have a budget (income goal) of $5.00 a day. If the likelihood of hitting that target is reduced to 20% due to changes in market sentiment, that retail trader may want to use binary options as a way to hedge against the 80% probability of a loss. For example, the trader betting on upside in the EUR/USD the markets can mitigate, in this case, the 80 percent chance that the price of the EUR/USD will turn against him. The forex retail trader would enter into the sell side of the appropriate number of binary options contracts (betting on a decline in the price of the EUR/USD) to offset the loss.
The ultimate hedge for the forex retail trader is to be sitting in the room with primary dealers (large banks) and central bank traders and listening to the prices they are quoting each other. How much of that information could a retail foreign exchange trader or binary options trader cajole out of a trading desk at a central bank or primary dealer?
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First, I would suspect that from a firm management perspective that a primary dealer (large bank) is going to subject under lock and key its proprietary data on methodologies regarding foreign exchange rates and contracts. A regular retail foreign exchange trader or binary options trader will not have access to this proprietary information for this basic business reason.
Second, the firm management perspective I described above is further expressed in the FX Global Code, a list of principles adhered to on a voluntary basis by participants in the wholesale foreign exchange industry. Adherents to the Code are expected to not disclose confidential information to external parties, except under specific circumstances. In addition, commentary on the markets (market colour) should be of a general nature where information exchanged does not breach the confidentiality of clients. In short, even if a retail forex trader were able to reach out to a bank’s trading desk, that bank would not offer up much information from inside the walled garden.
Even if a trader on a bank trading desk wanted to oblige a retail foreign exchange trader, the price manipulation cases of a decade ago where banks were accused by hedge funds and other large customers of manipulating the prices of foreign exchange contracts should have bank trading desks wary of sharing information.
For example, in the case, In re: Foreign Exchange Benchmark Rates Antitrust Litigation Simmtech v. Barclays, 74 F. Supp. 3d 581 (2015), the court defined manipulative actions to include use of chat rooms, texts, and emails; exchanging information about customer orders; agreement on trading strategies that manipulate the fix (that period right before and after 4:00 pm London time when interest rates and exchange rates are released); and sharing information about prices and net trading strategies.
Again, the risk of sharing trading information with retail traders just to help them reduce their information risks does not translate into a benefit for a trader on a bank trading desk. This need to avoid the risk of being accused of or slipping down the slippery slope of price or market manipulation is enough to dampen a retail trader’s attempt to elicit information from a trading desk or primary dealer.
Alton Drew
15 June 2025
DISCLAIMER: I am not a financial adviser. These blog posts are for educational purposes only. Trading of any kind involves risk. Your trading decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary.
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