“Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. So you always have equal access to trade in a rising or falling market.” – School of Pipsology
The general point that a forex trade is always possible makes sense, but the effect of structural bias could be clarified…
A definition I found in a white paper called ‘Structural Biases In Equity Markets’ (sorry, no links for new users but it’s on the Mackenzie Investments website) says that an index can show structural bias when it’s composition is determined by how buyers and sellers currently perceive it’s components.
I think the point at what they are getting at, and I could be misreading the question here, is that although when a ‘trader’ buys X units an equal number of units must also be sold by the counterparty - and therefore there seems to be no bias because it’s an equal transaction. However, when you bring into the mix that there is only a finite number of units available at each price increment, when you have exhausted the units at one price level then the market will move to the next level where units are available; this is what moves the market and this is liquidity.
However, the above is true for traders who interact with the market. It’s different in the retail market (most of the time). We don’t actually directly feed orders into the market, we use retail brokers who typically take the risk because we place a ‘bet’ with them per se. Most retail brokers will aggregate all client buy and sell orders, net them off in-house and then finally, maybe, pass the net exposure to market so that they can off-set their own risk.
Is this what you were asking, the above is just a snap summary?
Stock indices such as the Dow and S&P500 have an upward or positive structural bias because as share prices of members of the index weaken, these companies are eliminated and replaced with companies with stronger share prices. So the S&P always moves to contain the 500 US firms with largest market capitalisation.
There is no such upward (or downward) structural bias to individual shares or currency exchange rates.
Am I right to take away that structural bias can form in the interactions between the traders, brokers and the market (including, in the case of stocks the indices created from stocks) but that retail forex traders can effectively see the market as a trader-to-trader exchange ?
You’ve got me stumped on this one - not in the sense that I don’t know the answer, but more so because markets can have a bias beyond our own control - aka manipulation. How this is done, who specifically does it and when it is done is like a black box. Sure, it’s driven by the big players, the banks, institutes, liquidity providers, market makers and ‘dark pools’.
I really wouldn’t even look at it as an exchange, because nothing is ‘exchanging’ from a retail point of view, at least not on an individual level per trader; but again this is down to the broker who you speculate with. Hence there is a difference between ‘trading’ and ‘speculating’.
It’s become apparent I’ve not got an answer to this question, at least in the correct context
That’s a way of looking at for sure - although I would suggest that when inflation at a modest rate is taken into account, even the weaker shares do have a tendency to increase.
Then of course we have Fed “interference” to “Hold the market up”
You can see why people like @tommor being trend traders would favour the DoW or S&P !
Whereas I’m a contrarian by nature and migrated over here FROM the Dow for the reason that Forex refers to Real monetary values at which teh currencies of two countries can be traded one for the other. If you think about that then they are naturally inclined to be “Range trading” Here is the EURO DOLLAR for the same period - see what I mean ?
Slightly negative bias due to US policy of “Strong dollar” and nervousness as to how well - or even IF - the EURO can survive “Brexit” but the principle of “No Structural Bias” is quite clear really !
It may not be what the question is asking bt I think your on to something so structural bias is basically in terms of retail market participants it’s us against the broker?
