http://www.bloomberg.com/news/2014-06-19/currency-probe-widens-as-u-s-said-to-target-markups.html I really don't understand these clients who hand bank traders a blank check. So these small less sophisticated hedge funds (still big enough to have accounts at GS apparently) call the trader and ask him to buy 2m GBP, and dont care if GS holds their order for a while and then charges them the most unfavorable rate during that time frame? Why?
same reason for why many folks cant be bothered to managed their own money, or why they pay accountants to do a lot of the work they could easily do, why do people stay with bank accounts that pay no interest and charge fees when there are alternatives. etc etc It boils down to either couldnt be bothered, not enough time, not enough interest, cost v benefit, and simply trusting the brokers will do a reasonable job and charge a reasonable amount. I know from first hand experience if you wish to transfer money overseas you can either simply get a bank to do it and they charge 1-2-3% OR i can do it via my trading account.....but it takes time to have set it up, time to do the trade and over the long run due to the timing difference of me doing the trade via when maybe the bank might do it, I have an advantage but for others it might work out much the same. In the article it simply points out that a lazy or naive manager (too trusting) is gamed by his broker. There are so many potential conflicts and pitfalls here that it boils down to this.... The person who is most incentivised to watch your money closely is you......what do you think happens when you farm that out. Not every time but some of the time. //////// side note: many years ago over drinks talking to a senior operations person at a large bank.....they let slip that bank errors occur all the time, and there are 2 types of clients. Those that watch their money closely and monitor and reconcile and pick up these errors, and those that dont. Guess which ones they preferred.