Hi ! Im very much a big newbiee at this . Have been reading some but still would like to ask you kind of a basic question!
Whats up with the sellers and buyers and their “affect” on the price, bid and ask? I mean What actually is the reason that make the price fall and rise? Hope you understood my question cause im a bit confused myself right now…
Think of the forex market as an online auction site…
Say you wanted to buy something off eBay, let’s call it a “widget.” You go to eBay, types “widget” in the search box, and see that there are 100 widgets for sale, ranging in price from $10 all the way up to $50.
So which one do you buy? The cheapest of course! So you place an order for one $10 widget.
Now when the next widget shopper comes along and searches he finds the cheapest one is $11, but that’s a fair price to him so he buys it. This pattern keeps repeating over and over until the cheapest widget is $25.
After this happens the widget buying seems to stop. The buyers drove the lowest price of widgets up to $25, but it turns out that people aren’t willing to pay more than that, so the demand shrivels up and the widgets just sit there.
So what happens to all the widget sellers that really want to unload their merchandise? They lower the price of their widgets until buying starts back up again, and the whole process repeats itself.
What has happened is that the demand for widgets drove the price up, then they became too expensive. Then an excess supply of widgets drove the price back down. This is, basically, what moves forex prices.