Order Flow Trading

Beginner Questions
21

Not quite sure that is how it works… its banks that take the risk of currency dealing for the airlines, it more works in terms of this:

First of all airbus makes about 20 billion euros over 5000 orders. The mean would be 40 million euros. This is important, because there are very few billion euro deals. So lets call it a 200 million dollar order made by United Airlines for 10 airplanes, which is 2000 full contracts to buy. I am sure United Airlines do not have a forex dealer on their paybooks. Instead, they just call up a variety of banks to ask what the best rate of euros to dollars is.

Societe Generale say they can do it for 1.33241. Citibank say they can do it for 1.33235. Santander say they can do it for 1.33229. Now the United Airlines takes Santander’s offer because its the best price for euros. It is Santander’s forex traders that are going to try and get a better price than 1.33241 to make their commission, not United Airlines. Hence if they can buy the pair at 1.33129, they have made 10 pips profit, or $200 000 on the trade of 2000 contracts. SG have already taken the dollars off the United Airlines account, and paid Airbus in euros essentially on credit. Now they need to make a profit on the trade of that 10 pips. They hence place their sell order at 1.33129 for those pips. Not further away, because although they want profit, they want to get filled, because if they don’t get filled they are looking at being 200 million in debit. They place the order where their traders expect will be a high probability area to get filled.

Order flow works because 2000 full contracts is a lot of money, and buying 2000 full contracts would cause a huge spike. Santander do not want to pay any more 1.33129, so they are buying anything up to 1.33129. So every time the market hits 1.33129 and below, 300-800 contracts are bought up of the limit order, leaving another 1200 or so orders to fill. This will allow 2-3 bounces off this line. And of course, Santander have probably have some orders from Pfizer, Thomas Cook, General Motors, Dominoes Pizza, amongst others making up more contracts over a month.

During news times, if the news is good for the dollar/bad for the euro, Santander would see that as a great opportunity to buy into the news, making their 10 pips for all their contracts and being flat. If the news is bad for the dollar/good for the euro, and the market is in an uptrend, equally, Santander may have to buy all their orders because they won’t see their price, and they may take less profit or a loss. eg: If SG set their buy orders slightly above Santander, Santander may have to hurry to buy to not make a loss, hence a sudden upmove in price.

In the other direction, Air France is buying Boeing’s off Boeing, and they equally call up their banks for the best deal, and are buying dollars with their euros. Their best offer is 1.38001 from SG, so SG will be trying to sell their contracts a place where they will be filled, yet will net them pips. Hence the orders flow from one order to the next.

22

They wouldn’t get the 6 yards at once. Of course not.

But the idea is, you have BIG market players using one way trips who are not interested in speculation that throw the order flow off occasionally.

23

No, large 1 way trips are part of order flow. There is no such thing as ‘throwing off order flow’ an order is an order no matter how many or how much its worth. Yes there are 1 way orders, these are the spots that i like to target personally. But who cares, stops are orders, limit orders are orders etc. The key here is did it add liquidity to the market, its an unequivocal yes. That is the entire function of the market, to seek out liquidity and move price in correlation to that. I think people here fail to realize the implications of orders and the market. Who cares if there is a 1 way trip, or its a round turn, or its stop loss being triggered. Did it move price, yes, could you have profited from it, yes. Also what does your 6 yards at once mean? One day, transaction, one session. Your right that your not going to get a complete fill on that in 1 crossing of the bid/ask. But can they fill it in 1 session, probably, can they fill it in 1 full trading day, in all likelyhood. I have seen 1000 full size contract orders in futures filled in a very small market compared to forex or even stock market. These orders took less than an hour for a complete fill on average. Sometimes as short at 15 minutes. depending on volatility, liquidity and the pit action. SO yes factors would have to be inline for a quick fill, but it is entirely possible. The end of the day its the ‘average’ price of the fill that matters, they will take fills above and below their price. That’s why support and resistance is a zone. But after the entire order has been filled their average value should be less than or equal to the limit value of the order. I feel that people forget its the volatility of the market that allows us to profit. If the market was efficient which it isn’t. it would just trade sideways all the time, and there would be no money to be made. It is these areas of order flow and inefficiencies and human nature that we exploit as traders in order to be profitable.

24

Hey man did you ever find your way with order flow trading? I am now getting into the concept of it. wanted to know if you have found any consistency with it ? I purchased Ds’s book. I am hoping it helps to clear things up for me along with some guidance from experienced guys that are doing it currently.

25

The O/P hasn’t posted since. However the main protagonists are still here so you may get a
response from them.

For my part I found order flow hit & miss, using sites such as Talking-Forex & Oanda,
there was too much uncertainty involved. I prefer Yunny’s Price Action with S/R.

However if it pulls in the pips etc.

26

HEY THANKS FOR THE REPLY. dO YOU HAVE THE LINK TO YUNNY’S SITE AND DID YOU READ DARKSTARS BOOK?

27

I like this meaningful strategy, thanks for sharing this information, looking more to hear from you.