In other markets with order books, charts are based on “last traded price”, on the price of the last trade that happened, and not on the Market Price (the bid and the ask). So in markets with low liquidity if there are no new trades made the chart continues to show the Last Price even if the Bid and Ask change. Actually in low liquidity markets you can see traders changing their limit orders in the order book in real time and the chart remains the same.
Now, Forex Charts are confusing me (maybe because there is not an order book) they seem to work in a different way than stock, futures, options, crypto, ETFs charts. The different thing is that there is a “BID CHART” and an “ASK CHART”, does this mean that the data used to plot the chart come from Market Price, Bid Price and Ask Price respectively, and not from Last Price? Let’s make an example, EURUSD, Bid Chart, if hypothetically there are no new trade made BUT the Bid price change, is the chart going to change and to show the NEW bid price, or a trade has to be made for that price in order to be shown in the chart?
There is no official price for anything in private retail forex trading. The only thing that’s important is the bid and ask prices that your broker quotes for you.
So Forex Charts are just a real time plotting of the bid and ask prices quoted by the broker? Doesn’t a trade at that quoted price have to happen in order to consider that price for the chart?
Because in this lesson of the school 3 Types of Forex Charts and How to Read Them - BabyPips.com it says: “The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid.” is this sentence wrong? Reading this one could assume that forex charts work like stock charts, where last traded price is used for the chart.
That sentence should be modified to: “The bottom of the vertical bar indicates the lowest bid/ask price for that time period, while the top of the bar indicates the highest price paid.” am I correct?
Most traders trade through brokers who set their own prices, and these are based on what the brokers see happening in the actual currency markets, but modified continuously by the broker’s aggregated risk to each currency. This is why their spreads widen and contract every few seconds, they are adjusting themselves continuously to keep the broker’s exposure to price changes neutral.