Forex Price Dynamics

[ellliottt]

In order to gain an understanding of what actually moves the prices, or exchange rates in the interbank market, we must first understand that for any transaction to take place, there must be a buyer and there must be a seller – there must be a counter party for every trade. Open interest in the forex can be loosely defined as the combination of all resting (limit) orders. Many market participants set such orders either above (sell limit) or below the current price (buy limit). These orders are to be filled only when price reaches the set level. For example, say we are trading EUR/USD and the current bid price is at 1.2500. We set a sell limit order at 1.2501. When will our order get triggered? Once all the sell orders at 1.2500 have found buyers, the bid price will move up to the next available level, which is 1.2501. Once buyers enter the market at that price (they would actually be paying the ask price, and the broker would collect the difference), they become the counter party to our trade and our order is filled. One way to look at it is that there are essentially 2 types of orders: limit orders and market orders. There are other types, but they can always be classified as sub-types of these two. Limit orders are set to execute if and only if a set price level is reached, while market orders are set to execute at the current market price. Alternately, limit orders can be described as providing open interest, while market orders can be described as consuming open interest. This is a very important distinction because it is the backbone of price dynamics.

It should be noted that the only relationship between bid and ask prices is that the ask price, by its definition, should never be lower than the bid price. In every other aspect, the two are unrelated, so the spread between the two varies according to where the open interest lies. During times of low liquidity there may be no one interested in buying above 1.2450 and no one interested in selling below 1.2550, making the spread 100+ pips. This is not necessarily the product of shady dealer practices (though at the retail level it may be), but is more likely caused my normal market mechanics – all open interest was either consumed by market orders, or withdrawn (limit orders can be cancelled before they are executed). This type of situation normally happens when important, unexpected information enters the market, such as an NFP reading that is way off the mark. In that case, open interest in one direction will be consumed by a barrage of market orders, and open interest in the other direction will be withdrawn by market participants cancelling their orders. This is equivalent to saying that liquidity is “drying up”, and that the bid price will gap down until it finds a buy limit order, and likewise, the ask price will jump up until it reaches a sell limit order. Note that no one has come in and “set” the spread. The spread is not a parameter that can be set, but is rather the result of market mechanics at their most basic level. It also should not be a surprise that, although today’s technology is lightning fast, there are delays between market order entry and execution, during which time the open interest at the desired level can be consumed, particularly in fast moving markets. In such circumstances, there is no longer a counterparty to take the market order at the desired level, and it can either be filled at a worse price (slippage), or it can be re-quoted. Again, this is not necessarily indicative of any malpractice by your broker, but is more often than not a natural result of market mechanics and the delays inherent in communication media. It should be noted however, that once prices have moved through several tiers and they reach the retail level, they may or may not have been “massaged” by someone along the way (a practice known as price shading). This is the reason many quote for their preference in trading through an ECN rather than a traditional retail broker. In reality, there are advantages and disadvantages to both. You can explore exactly how and why this is true in our follow-up article How Forex Brokers Work.

[myregister]

If you want to see the rapid movement take a look at big impact news, you will find out that forex price is truly so dynamic, also during the peak hours at trading the price will volatile more than we expect for example during last session at friday.

[pepy]

Price is dynamic and we don't have doubt about that, it is really normal because forex itself is a dynamic market where a lot of traders could make more profit thanks for that dynamic movement that forex has for it, to me the most important part is how to deal with this dynamic movement. 

[myregister]

Price is dynamic and we don't have doubt about that, it is really normal because forex itself is a dynamic market where a lot of traders could make more profit thanks for that dynamic movement that forex has for it, to me the most important part is how to deal with this dynamic movement. 

True for sure this one is dynamic and this is why a trader must know the right time for entering the market. My friend who spend their time in stock said that forex movement is even faster than stock making it riskier compared to stock in one day, but that is not always the case but mostly happening.

[pepy]

It is not all about stock but i think that fox and stock has dynamic movement even in fx it is faster than what we know. Also fx is more dynamic and keep dynamic because there are a lot of participants inside and not just  real human but even robots keep trading too.

[myregister]

It is inherently dynamic, also it is not just dynamic because stock also dynamic but the price movement of foreign exchange is faster than usual. FX price is totally hard to predict even with some indicators sometimes we still have some problems.

[pepy]

It is inherently dynamic, also it is not just dynamic because stock also dynamic but the price movement of foreign exchange is faster than usual. FX price is totally hard to predict even with some indicators sometimes we still have some problems.

Since the liquidity is higher that is why there's chance for the price to move faster, can you imagine how much money that circulated inside of forex and forex is not centralized business just like stock, but it is decentralized which means there are more than one liquidity provider that compete to give better price.

[myregister]

Yes that is true it could give better price or competitive one, that what makes FX is good in the eyes for most of people who involved inside or has been involved inside. Since FX dynamic that is why we must be careful, one wrong step you will be end just like other who lose.

[pepy]

But that dangerous part which make people want to plunge theirselves inside and make more money so you don't want to worry about that mostly who still stay in forex already know about this issue. FX is dynamic because of many participants can bid the price thus drivin the price to higher level scale, especially during volatile hours.

[myregister]

It has a lot of participants more than what we ever think before majority are retail traders but the sum of money retail traders traded still low compared to big players such as banks, or a trading specialized company. The amount more than thrice what all retail traders could get.

[pepy]

But retail traders if want to unite together and make a change it could be possible, to sum up all the money that use by retail traders we can compete against those big bankers, but once again everyone for theirselves here. Traders in forex only for the sake of speculating and make money thus driving the price to move dynamically.

[myregister]

I don't know how much money that all retail traders had but big players like JPMorgan or other kind of banks are really rich, they have a lot of money that circulated everyday, trying to speculate and make profit from it. However, it is hard to unite, like you said everyone for himself, i want to make profit so you do.

[pepy]

Retail traders combined should have bigger chance to make the price move buddy, look at how many people decide to sell and buy at the same time and see the price is moving. This is what make forex currency pair's dynamic more than ever also it is good for someone who want volatility since people want to make profit in forex from its difference isn't it?

[myregister]

Where do you get that kind of information because as far as i know it is those big bankers who make big profit even not always but they do often make profit and it is them combined has large pool of money where they all can trade inside. Thus, it drives the price well i know retail traders isn't small enough but those big bankers are very big than retail traders and have potential to push the price up or down.

[pepy]

It is a well-know thing in foreign exchange, we already know about how good forex is and how fast it is moving thanks to its liquidity plus its never ending stop market. Since it never stops the price will always fluctuate and people from all over the world, without any centralized exchange can influence the price thus make fx's price dynamic.

[myregister]

This is why forex is attractive business from the sense of profit each trader could get from speculation and also in forex 90% of trading based on traders who want to speculate not just for exchanging the position.. FX is truly dynamic more than other business i've ever seen in my life.

[pepy]

This is why forex is attractive business from the sense of profit each trader could get from speculation and also in forex 90% of trading based on traders who want to speculate not just for exchanging the position.. FX is truly dynamic more than other business i've ever seen in my life.

The dynamic nature of forex is a fact, and that is come because most people do speculation just like you said, and for the simple analogy is if all traders decide to buy a currency of course the price of that currency will keep rising and keep rising and vice versa if all traders decide to sell. But this could be disaster for who prefer stagnancy but for forex traders volatility could means profit.

[myregister]

Since the price of forex is dynamic people will feel happier to trade here, or to be exact to speculate here. WHy? Imagine if the price is stuck what happened to the market then? People cannot speculate, or at least there are very low volatility, what people can reap there? Swap? Of course we want profit based on sell high buy low concept.

[RonaldSmug]

heres an indicator that can help you spot areas simular to the above calls. plus it has a kicksass donchian which can also help you find price recurring price targets.

 

also if you add sam seidens methods on top of this you get something very interesting

[gds221]

It is the task of the trader to keep track of prices in Forex. There are many convenient applications for this.

[Vaabum]

I am very good at keeping track of prices thanks to analytics from ExpertOption. In my opinion, this is a really good option in order to get a good result.