Not a free market?
What are you talking about? Forex is about as free as you can get, with many companies offering trading accounts with tiny spreads on them.
That you are essentially betting on up/down movements, which very few people can predict accurately (including the well paid traders!) is another matter entirely. I wouldn't try but I know some people who do....
Putting tax on transactions is a bad idea. Increasing cost of sale decreases liquidity - why do 100 transactions a second when you can get away with 1 a minute? I guess this is why Tim thinks the spreads will widen, and I am inclined to agree but only to some extent. The main reason for spreads increasing was the lack of competition because many banks got scared and left the market, and the ones that were left saw a profit opportunity.
Liquidity is a good thing - it sets a fairer price for everything, making it harder for the "big boys" to price fix. Consider trying to sell your car - if there is only one person who is buying cars that month they can set whatever price they want, and you either have to take it or wait another month. With 1000 people buying cars (more liquidity) you are going to get a fairer price.
Anyway the main point that a tax on transactions will be stupidly bad for just about everyone, and not hurt the banks is completely valid.