I was wondering what exactly moved the market in terms of pips and micro pips. I can’t seem to find any precise answers anywhere. We see them move all the time in currency but I have only been able to find vague answers as to what moves the market at the very base. From what I have read if many people buy a currency like EUR/USD then the price goes up; The euro becomes more valuable and the dollar less so (and this applies to all currency’s involving the euro or the dollar, even if the trade was only done in EUR/USD)
The only answer i was able to find that went in depth was this:
When deals are being done price is not moving, it is only when there is an imbalance in the market that the price mechanism moves to an equilibrium which matches buyers and sellers. So if there are $2bn buyers of EUR, and only $1bn of sellers at that price, $1bn of buyers in the market will still remain once all deals at that price are done, ceteris paribus, and price will seek out the level where more sellers are prepared to come into the market, assuming those buyers still wish to purchase at the higher price. That is how it works in supply and demand terms in a perfect market anyway. So there is no definitive value of how much it takes to move 1 pip, but theoretically it is just $1 more than the total amount of buyers or sellers at that price.
That was from a thread asking about how much money would needed to be traded in one trade to move the market one pip. Is it really this equilibrium that moves the prices around? And if so, how? Would it change with a 1$ imbalance or does it need more to justify changing a pip/micropip (Such as 1$ imbalance changing the price 1*10^-9 pips, and one trillion imbalance moving priced a pip)? If it isn’t equilibrium then what does it take to move the market a micropip or so?
I’m still learning but I’m finding it hard to wrap my head around the technical when I don’t even know a detailed view on what actually pushes the market. Any answers and explanations would be tons of help for me. Thanks!
Theoretically just $1 should move the market one pip or pipette. This depends on the platform… EBS allows pipettes… Reuters I think quotes price in pips (not sure).
But in real life trading… at the interbank level, the average lot size is 5 and 10 million (to clients is at least 1 million), so you might need at least 5 million to move the market one pip.
In very simple terms, the trade flows and capital flows between countries are what predominantly moves the forex market.
Trade flows are the buying and selling of goods and services between countries.
Trade flows measure the balance of trade (exports – imports). This is the amount of goods that one country sells to other countries minus the amount of goods that a country buys from other countries. This calculation includes all international goods transactions and represents a country’s trade balance.
Buying and selling of goods involves using the currency of that country. For example, if you want to import a car from Japan you need to pay Japan in JPY. If Japan wants to buy an aircraft from the US, they pay in USD. These trade transactions can affect the value of the respective currencies.
Capital flows encompass all of the money moving between countries as a result of investment flows into and out of countries around the world.
When a market in a particular country is showing above average returns, foreign investors will often flood the market with capital, buying up the assets of that country looking to earn above average returns as well. When this happens it not only affects the markets of that country, but also the value of its currency, as foreign capital must be converted into local currency in order to participate in the markets there.
Just open up a demo account with Dukascopy on their Jforex platform and you will see the level 2 data for yourself. Sure its not a true image of the entire market place, although it will give a very good idea of the number of lots available at each price level before partial fills kick in.