First of all I’d like to thank Babypips’ team for this nice and smart site!
I’m in the very beginning of Forex learning and have a question that disturbing me.
As we know at least two participants are involved in each deal: one is going to sell something and the other is going to buy that.
Imagine there is a strong well-identified downtrend of, for example, EUR/USD currency pair. I can see it, so can my colleague… Almost everyone would go short in such market conditions. But if everyone is bearish WHO is going to BUY? And, vice versa, after a reversal to an uptrend and according to common sense it’s better to go long. Then who will sell? And why does the market remain liquid?
Speculators aren’t the only ones who participate in the forex market… There are also commercial players/businesses who need to exchange their currencies to import/export. Hedgers also use the forex market to minimize/eliminate risk in their transactions.
But speculators account for roughly 90% of trading volume (knowledge from School of Pipsology).
They seem to be a quite powerful force. And they could have crashed the market. Fortunately, this never happens.
I’m trying to understand the mechanics behind but I can’t.
Just because a currency is in a down-trend, it doesn’t mean that people aren’t buying it. Any country/company wishing to import goods from that country will have to buy the currency in question. So using your example, anyone wishing to import from the Euro-zone will have to buy the Euro in order to do business (whether its trending up or down). Or at least as a Newbie, this is my interpretation - hopefully someone backs me up.
Obviously speculators should be following the trend but you’ll always get a good few that get it wrong too.
It sounds sensible for me. I was confused with that ‘90%’ figure. I guess it’s correct under normal circumstances. If the market situation becomes critical the major players (like Central Banks) undertake their corrective measures to support the market.
retail traders like us, are mostly handled by brokers. these brokers provide liquidity and most of us trade against them, in-house. in other words, most of our trades do not reach the interbank market.
majority of traders lose; using your example and this information, you will see that there should be no concern about who is going to take the opposite side of your trade.
the market is liquid because there are a lot of players and because currencies are used globally.
you can’t make sense of it because that data seem to be flawed or inaccurate or at least misconstrued by readers.
Maybe a buyer or a mix of them in different timeframes with different pairs but sharing the same currencies but when nobody else is in the opposite side the price pulls back.