Hi. I have been studying Pipsology. I have couple questions please.
According to Pipsology,
when I trade through an online forex broker, I am only buying from and selling to my broker (dealer?).
the broker acquires and determines the price information that it shows to its customers, from external sources (with or without any markup).
So in that case, what the customers (retail traders) do shouldn’t affect the price of any currency pair at all.
Let’s say most of the customers/traders of the same broker decide to buy a certain pair at the same time which should push the price up? but since the prices are coming from external sources, how will the price be affected at all with what the customers of a certain forex broker are doing?
If what we retail traders do doesn’t make any impact on the forex prices, than are we not part of the supply/demand? For example, by buying pairs, are we not creating any demand? or vice versa
Even if all retail traders bought from a certain broker there is a high chance that all their buying power is not enough to push the price even a pip. We technically are part of supply and demand since we have orders in a specific price but the amount of the orders retail traders create doesn’t compare with banks, hedge funds etc.
So to answer your question we are a part of supply and demand but a very small one and by that we can’t create our own supply and demand so we don’t really affect price at all on our own.
We are betting on the exchange rate between pairs of currencies. We are not buying currency and selling currency.
Just as in betting on two boxers in a boxing match, the amount of money put by bettors on one of the two fighters to win is not going to affect the outcome of the match.
So based on what you all are saying, would it be wrong to assume that doing what other retail traders are doing has little or no use if I want to win?
For example, can we say that, if most retail traders are making use of Fibonacci levels to make trading decisions, like when to buy or sell, doesn’t make this strategy a self-fulfilling prophecy since the retail traders has almost no effect on the price action? (unless the professional traders from the banks/hedge funds etc are also using Fibonacci levels)
Yes. what other private retail traders do has no influence on price large enough to underlie a strategy or to make a strategy work.
However some traders use sentiment percentages from their brokers as reverse trade indicators. Since 70-80% of active private retail traders are losing money, it follows that most of what most of them are doing is wrong. So if most of your broker’s clients are short, you should be thinking about being long.
Forum sentiment also helps. If most Inexperienced traders are here saying they just started trading off 5-minute charts and are already fast going broke, or they keep getting stopped out when they go short on a pin-bar, it might be profitable to be not doing what they are doing.
This is not correct because most of the broker takes their trade in opposite direction to you - as they neither want to make money or lose but content with their earnings from the spreads!
As the broker is always trying to match buyers and sellers, the retail traders are somehow affect the price but relatively in small ways. The institutional traders and banks have more influence than the retail traders.
No, you can win by following the rain makers! That’s the institutional and bank traders - the retail traders are more likely to loose against them due to shear power of scale in trading sizes etc.
There is one more thing that still doesn’t register with me. On the page whose link is below, it says “This usually is caused by the institutional traders who want to scrape money from the hands of individual traders.”
How can an institutional trader or any other type of a trader make money when I lose (assuming neither of them is my broker) since I am not trading currencies with anyone but only betting on the future prices of them against my dealer/broker who is the only one to make or lose money from my trades? I am lost about the idea of forex being a zero-sum game. Could anyone enlighten me please?
It’s simple. When the retail trader lose, the big brothers (institutional / bank traders) makes money. They often hunt stop loses because they know where they are set and can do it with their available capital and then move in the opposite direction to trap retail traders trading on fear of mission out. That’s why we have pullbacks and retracements or reversals.
The big players are competing with each other, not us. I would be surprised if the banks, who are actually involved in buying and selling currency, paid any attention to what we think and do.
Brokers may be trading in the same market at the same time as facilitating their clients’ trades (though that doesn’t mean they are buying and selling currency). The positions the broker takes may be opposite to what some of their clients take - but this is obvious as there would never be 100% agreement amongst a broker’s clients whether to be long or short on a pair.
Can I ask who those traders are if they are not retail traders because retail traders cannot affect the prices much right? A bit confused about the market players maybe.