Hey, i wanted to ask how do market prices change if forex trading is a Zero-Sum game. I mean if at the same time the same amount of people is buying and selling the same currency pair, why does this pair’s price goes up or down?
There is no simple explaination. The market is zero-sum… but currency manipulation throws it out of wack since a central bank can increase the supply and create more currency, or increase the currency’s value (interest rate) and increase demand. Among other influences are intervention, trade balances, ect.
If there is an equal amount of buyers and sellers at a certain price, the price will stay until an imbalance occurs. This area is known as Fair Value. Fair Value area will always have the most transactions as it’s a good price for both buyers and sellers. Think of a price of a new car. If the price is too high, they won’t sell any. If the price is too low, they wont be able to make enough cars to meet demand. The middle area is where both parties can do business.
The Bid is the highest price a liquidity provider is willing to pay. The Ask is the lowest a liquidity provider is willing to sell.
The imbalance that leads to price change can be a drop of supply on the Bid or Ask, or an increase of demand against the Bid or Ask prices.
If there is an increase of demand for the Ask, market makers & liquidity providers will increase prices until demand decreases and a balance is again found. This is known as Price Discovery. If for some reason a fundamental change occurs in a security, the liquidity providers will move price accordingly to match buyers and sellers.
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Although the forex mkt is (kind of) a zero-sum game, it is not insulated from the rest of the world and many buyers/sellers are not simply speculating on where the currency price will go next. A few simplified examples:
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import/export companies buy/sell currencies to buy goods to sell and their profit is from their product sales regardless of where the exch rate moves after their transaction.
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similarly, int’l companies funding their operations in other countries will buy/sell currencies whenever it suits their business objectives and not where the exch rate will be next week. And routine expenses like salaries, etc need funding at certain times regardless of the exchange rate.
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investment/pension funds, etc are looking for gains from their investments such as int rate income and share price increases and will buy/sell currencies whenever the rate suits their overall investment objectives and not just based on a currency rate view.
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some commodities need to be bought at regular intervals regardless of the exch rate at the time, such as oil.
All these varying interests create changes/inequalities in the overall supply/demand of each currency which creates different pressures on the price of each currency relative to the other in any pair.
These pressures are converted to market transactions largely by the market-makers in the currency markets who always quote a bid/ask spread regardless of the changes in supply/demand. Obviously, when the buying pressure for one currency increases and creates an imbalance in supply/demand for it then the market-makers adjust their bid/offer towards a new balance point. Market-makers also trade within their own community and thus the changes in bid/offers are effectively transmitted closely across the entire market with very small differences reflecting their own interests.
If the difference between the bid/offers amongst the market-makers was large then it would be open to arbitrage traders buying at one offer and simultaneously selling into another bid - and keeping the profit 
The mkt has many interested parties with a wide variety of interests and purposes. It is not just about speculative profit-seeking. Afterall, if everyone wants to buy apples and not oranges on the market then the apple stallholder will naturally increase his prices and the orange seller will reduce his price to get rid of his stock. Currency swings are not much different in principle
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Price will increase if an aggressive buyer buys everything on offer with the best ask price. And if an aggressive seller clears out everything on offer at the best bid the price drops to the value with the next best bid. Absolutely simple! Basic Auction mechanics. Nothing more and nothing less.
The principle of being a “zero sum market” means that no matter how much price moves or how many aggressive sellers there are vs aggressive buyers for every 1USD sold someone on the other side bought the 1USD. The goal of trading is to try and choose the team that is most aggressive. Then you will earn money.
Technically there is never an imbalance.
Even when price moves there is always a buyer and a seller. And the value bought and sold has to balance. The difference is best bid and best ask vs aggressive buying or selling hitting and clearing out everything at best bid or best ask.
And Central Banks very rarely have anything to do with the market.
Rather, institutional traders working for big banks and hedge funds following macroeconomic conditions and big news events who all believe simultaneously it is best to buy at a moment or sell at another moment make the huge volatile price movements.
Amount of people isn’t the same that’s the reason why they fluctuate. Sometimes there is excess of supply, other time excess of demand. Our goal it to spot emergence of those excesses as fast as possible.
Got nothing to do with amount of people!
Why can’t you understand the very basics of how the market auction works? On the side lines of the game you have people sitting at lower prices wanting to buy with bids and above them people sitting on the sidelines willing to sell with offers. Then someone comes along with an order to buy at market value. So they buy at the lowest best offer and if they buy everything on offer at that level price moves up. Maybe someone else sees price went up and think fundamentally nothing has changed but the price has gone up so they decide to sell at market value. They sell at the highest best bid price and if they sell enough that it clears out everything on offer at best bid price ticks down.
Very basic!
Nothing more, nothing less!
It is market combined market aggression of buyers vs sellers that cause price to rise or fall.
While forex trading is considered a zero-sum game, this refers to the overall profit and loss distribution among traders, not the price movement itself.
Currency pair prices are determined by supply and demand in the market, not just by the number of buyers and sellers.
Even if the number of buyers and sellers is equal, the volume of orders on each side can differ, causing price movements. Known as an “order imbalance.”
If buyers are trading larger volumes than sellers, the price tends to rise, and vice versa.
Large orders can “eat through” multiple price levels in the order book, causing rapid price changes.
The order flow (number of orders) and liquidity (availability of tradable amounts) can impact prices. So if there’s a surge in buy orders, but limited sell orders, the price may increase due to increased demand.
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In forex, a zero-sum game means one trader’s gain is another’s loss. Prices change due to supply and demand dynamics, influenced by economic data, geopolitical events, and market sentiment. Traders buy or sell currencies based on their expectations, causing fluctuations in exchange rates.