Hello, my name is Lucas. I’d like to ask a few questions, which probably most people understand but I just can’t get my head around it.
They might (probably will ) sound very stupid, but I’d just like to know the answers so I can finally make a relative picture of what the charts really mean. I would appreciate it so much if someone of you found the time to enlighten me a bit. Thanks in advance!
I decide to Buy EUR/USD (which means I’m buying EUR and selling USD at the same time?) - here is my concern. How can I “sell” something I don’t have? Does this have something in common with the term “short-selling” where you basically borrow something and sell it at the current price with the obligation to buy it back at later time (let’s say in FX you close it where you like to) - Is this it? Do I understand this basis of FX correctly?
The chart. Let’s say EUR/USD is at 1.05000. What does make it move to the 1.05001? To my understanding, someone just clicked buy order for the price of 1.05001 which got matched of the sell order at the same price, so the market moves up to the 1.05001. (and the money had to be the same on both sides, right? Like if I wanted to buy one million EUR, someone on the other side of the trade would have to want to sell one million EUR((or that million could consist of more market participants, but the whole sum would have to equal 0, right?)))
Jesus, I don’t know if I’m the dumbest person on here, I feel really stupid asking these questions but I can’t help it! I wanna understand it! :37:
I think that’s enough right now… thanks for any responses guys!
Have a nice day.
The reality, assuming that you’re trading through a counterparty market-maker broker (like most people here), is that you’re not[I][U] really[/U][/I] doing either. But your account with your broker is treated [B]as if[/B] you were doing that.
Well, you can, just as people can “sell” stocks/shares they don’t own - for example by borrowing them with an understanding that they’ll buy some later to repay the loan. But it’s easier to understand (perhaps) with currencies, because their supply isn’t limited in the same way that stocks are.
Yes, kind of … but again, note that when you deal with most FX “brokers” of the type used for trading by this forum’s members, it’s only an “[B]as if[/B]” transaction anyway.
Right - but again, that’s in the real interbank market, and there’s no certainty that that will happen (depending on what sort of broker you use). It may be that your broker will use the interbank market to offset his own net liabilities with his own clients, but that’s a different matter.
By the way, your questions are [I]far[/I] from stupid. I just hope my answers and the link above are of some use to you.
I’m planning to trade and currently demo trading with Oanda. From the babypips school I somewhat understand that Oanda is as said, a Market Maker, therefore in short, if I understand well, they only “simulate” the real Interbank chart/rates, so I will never trade with the traders from the real market. My broker will just always match my buy/sell order with an other Oanda/their liquidity provider’s? client buy/sell order or the broker even takes the other side of the trade - why would he do this though?
Brokers like Oanda (of whom there are hundreds, though few as good as Oanda) have an entirely different business model from those who execute every trade individually in the underlying market in exchange for a flat commission, rather than making their profit on the “spread”.
Whether Oanda actually matches every trade you make with anything at all, and/or simply match their own [I]net[/I] liabilities, is their concern, but as counterparty brokers go, they’re about as good as you can get, in my opinion (and I traded with them for a long time, myself).
Thanks for response. Don’t you have any link where I could read up on the broker’s counter-trading? I’m sorry but I don’t really understand why would broker take the other side of my trade. I would like to grasp the big picture from something. Greatly appreciated! Thanks!
It’s how they make a living. [I]Most[/I] retail traders lose. Counterparty brokers take the other sides of their trades and win.
It’s just a completely different way of making a living - and far, far easier to set up, differently regulated (sometimes), less capital-intensive (I think), and so on. I’m no expert on this subject. You need a broker to answer it, perhaps.
The basic idea of a market maker is they are looking to sell at the offer price and buy at the bid over and over. Each time they do that they make the difference (the spread). Repeat that many, many times and you make pretty good profits.
Now, in an ideal world all of the buying and selling would be in balance. That would mean the market maker has no net position. They would have no risk. In the real world, though, longs and shorts don’t balance exactly. Market makers have certain risk rules which determine how much exposure they are allowed to have. Anything above that they have to hedge or offset somewhere else.
Hi lucashier and welcome to the forum. Basically market makers win from their client losses. They have fixed spreads, “bonuses”, lower slippage and the positions go through a Dealing Desk (they decide if the position will be a winner or a loser - in most cases it’s a losing position) and are not placed on the real market. So be careful.
) sound very stupid, but I’d just like to know the answers so I can finally make a relative picture of what the charts really mean. I would appreciate it so much if someone of you found the time to enlighten me a bit. Thanks in advance!