WHY DO YOUTHINK THAT CXXT TRADING IS A SCAM FOR SHORTERS What...

WHY DO YOUTHINK THAT CXXT TRADING IS A SCAM FOR SHORTERS

What iscross trading?

Crosstrades take place when a portfolio manager or the broker matches buy and sellorders for the same security at the same price that results in transferringassets between two separate client accounts without passing the trade throughthe public market.

Such tradesare considered technically legal if the broker subsequently records them ascross trades and publishes relevant data to the exchange in a timely manner.

Apart fromthat, the execution of such trades must be conducted at the prevailing marketprice. Only then is this process counted as fully legal and appropriateactivity.

Regulatory concerns

Giventhe fact that cross trading means being executed unofficially and onoff-exchange boundaries, they remain vulnerable to misconduct and various formsof manipulation.

Because ofthese stipulations, many exchanges do not permit cross trading due to localregulations. Others simply choose to avoid facing legal consequences associatedwith incorrect implementation and utilisation of such practices.

However,executing these trades in strict accordance with legal requirements ensuresthat these transactions fall within the proper regulatory classification,allowing the parties involved to exchange freely within the boundaries of thelaw.

How does a cross trade take place?

For a crosstrade to occur, two clients on one exchange must select the same asset or Stockto trade, with a specific price determined.

Once theseorders are placed by market participants they are received by the broker. Ifthey are identified as matched by all necessary criteria, the brokers assetmanager can resort to executing a cross trade.

Forexample, a trader wants to place a sell order for $1,000 on BTC/USD at themarket price of $35,500. And another trader desires to place the exact same buyorder at $35,500 as well.

The sameasset manager for both client accounts will match the buy, sell orders, andexecute them offset, without recording the transaction on the exchange. Thisway filling them internally, satisfying both clients.

After thisthey will report to the exchange that the transaction was executed as a crosstrade for different clients.

Atime-stamped order, with matching order volume, and a fair market priceprovided now of execution for both customers, serves as proof that thetransaction complies with all regulatory classifications.

Why cross trade orders have a negative reputation.

The highlydebated transparency of cross trades, and the frequent misconduct with theirmechanics, have a close relation to market players, and the unscrupulousbrokers that take advantage of them to defraud millions of unsuspectingtraders.

Brokersheavily engaged in exercising cross trading often disregard the obligations ofproper reporting and informing their customers of fair prices, while runningmisleading campaigns to attract thousands of investors which fall victim totheir practices.

Regulatory oversight

Any disallowed involved in cross trading has the right to execute such transactionsat will, if they abide to the rules and regulations of the securities andexchange commission (SEC), in particular, Rule 17a-7 of the Investment CompanyAct of 1940.

This rule,along with other provisions of the SEC imply a number of requirements to be metfor such transactions to be considered legal, including:

The tradedsecurity in question must have available and accessible quotations thatcorrespond with the current market price for buy and sell orders for allparties involved, including highly volatile securities.

Transactionscarried out must adhere to each policy of the fund they interact with.

Derivativestrade hedges are permitted when matching orders via cross trading.

Blockorders may also be carried out by cross trades under special conditions.

Recordingtransactions is not mandatory when client’s assets are being transferredbetween accounts.

Ethical implications

On theother hand, the execution of cross trades comes with inherent pitfalls andethical implications, due to a lack of appropriate reporting for suchtransactions.

Since across trade is neither listed nor reported on the exchange, other marketparticipants may not be aware that a better price was available on the marketto trade the asset at more favourable conditions.

It is alsoworth mentioning that while cross trades permitted under specific regulationsdo not break the law, malicious investors can still misuse them for theiradvantage.

By creatingan appearance of substantial trading activity for the targeted security withunrecorded cross trades, they could mislead other market participants, which isalso considered unethical.

Who conducts cross trading?

While crosstrading is popular among high-net-worth institutional investors and hedgefunds, individuals also resort to this trading strategy.

Individualinvestors trading highly volatile securities often express heightened interestin cross trading, as it enables them to enhance their entry price into themarket.

Somebrokers also have a genuine interest in cross trading due to the ability todecrease latency while executing transaction.

Pros and cons

Like anyother practice in the financial sphere, cross trading has its advantageous anddestructive sides. Here are just a few you might want to note:

Advantages:an essential advantage of a cross trade is the ability for a trader to improvetheir entry price and buy or sell an asset at a specific price point, insteadof joining the public order book. Cross trades also allow participants toeliminate brokerage fees in the form of spread, at the cost of waiting for theorder to be matched and executed. Which helps save money over time. Anotherupside of adopting a cross trade strategy is the benefit of receiving a 1:1ratio deal with another participant of the market, and the absence of needingto settle for worse order conditions.

Disadvantages: unlike orders placed into the order book, atrader engaged in cross trading cannot place a stop loss or take profit orderto protect his investment or capture profit. Additionally, cross trades aresometimes used maliciously to manipulate prices and create fictional tradingvolumes, which may inflict damage on other participants as they make uninformedand blind decisions. Moreover, the off-ramp nature of cross trades simplyexcludes other investors from making more beneficial trades at prices availableonly to involved parties of the cross trade.

The future of cross trading

The futureof cross trading is uncertain, as many factors continue undermining the trustof investors in this practice. While many see this method of tradingbeneficial, some remain hesitant.

Nonetheless,the effective transaction execution and the reduction of transaction costsmakes this practice an efficient method. Especially when it comes to the latestindustry changes, where more brokers are complying with regulations.

Conclusion

Crosstrading is an acceptable practice when executed in accordance with regulatoryconditions and requirements. Additionally, it provides improved transactionprocessing and a substantial cut on costs.

However,some brokers tend to misuse this trading method to manipulate prices andundermine the actual market sentiment, by ignoring proper reporting of theoffset transactions.

It is vitalto always conduct your own research and analysis of the underlying asset beforemaking any financial decision to trade or exchange a security with an outsetstrategy, including cross trading.