What keeps the forex market in check

Trading Discussion
1

Hi

Not sure if this is the right place for such a question but

What keeps the forex market in check

I mean who controls the outcome if say everybody went Short on a currency and therefore brought its value to zero

Could that happen. Obviously not or it would of happened already

Just a thought

If anyone knows i think it would be nice to share

Ron

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2

There can be no shorts without longs, so it cannot be the case that shorts drive the value of a currency to zero. What [I]could[/I] do it, however, is the absense of willing longs. If nobody wants to hold a certain currency, it could effectively go to zero, and there’s nothing to prevent that happening from a fundamental perspective - though obviously the political and monetary authorities could act to try to prevent it happening.

3

Technically, that is correct, because no transaction could occur at a price [B]exactly[/B] equal to zero.

But, for the sake of the OP, who might be confused by your answer, transactions involving [B]both longs and shorts[/B] could take the price of anything, including the price of any currency pair, down to [B]almost[/B] zero.

If selling pressure can drive the USD/CHF down 100 pips, then it can drive the USD/CHF down 1,000 pips, or down 7,800 pips — which would make the USD/CHF = 0.0050 (approximately). In other words, the U.S. dollar = ½ Swiss cent — essentially, zero.

And every tick of that crash to (almost) zero [B]would have involved a long, as well as a short.[/B]

4

Thanks for the answers guys

Puts a different light on volatility

Ron

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5

I have gone through this thread… And found it pretty informative… Thank you so much for sharing this information with us… That would help out a lot of people too to get knowledge about the market and its movements!!