If someone sells something then obviously someone bought it from that person. So we can say the number of buyers and sellers are equal. Then why do we have downtrends and uptrends and a tug of war between buyers and sellers (consolidation) ? How does price move either up or down. Don’t talk about supply and demand zones. Is the market really just what majority think will happen that happens?
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Central banks at the top, institutions in the middle and at the bottom us retailers. It is not at all about buying and selling from others. It is algorithmic programmed for the central banks to make money and to provide liquidity.
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Prices rise when the majority of buyers are willing to pay more than other buyers for the same asset. Or when the majority of sellers refuse to sell as low as other sellers.
The converse is true of course. Prices fall when the majority of sellers are willing to accept a lower price than other sellers. Or when the majority of buyers refuse to buy as high as other buyers.
The market is so large and diverse that there will always be multiple opinions as to the right price of currency at which to buy and at which to sell.
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So it’s where orders are placed that attract price
So if central banks and institutions are involved, are they buying and selling every single day? Wouldn’t they be on some schedule maybe where they have to look at their books and make some decisions? Somebody has to know what kind of buying and selling they do from like a time perspective right?
Its true in the broadest sense. A massive amount of capital enters forex when the London offices start their trading day in the morning. More enters with the start of the New York business day. As the London offices are closing, action on many pairs is already tailing off, and prices often go very flat when New York closes.
It would be great indeed to know more than this but I haven’t heard anything to say that anyone has a lot more detail.
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I guess they wouldn’t want this public knowledge necessarily, cuz we would be watching for those specific days/weeks/months/quarters.
I just think they would operate on more of a schedule or something.
Look, FX trading is the largest financial market with a trillion currency turnover - a million million million (1,000,000,000,000,000,000.) Price movements up and down are made by humans opening and closing their positions. You can never say the number of buyers and sellers are equal otherwise you’d have no price movement.
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As @steve369 and others have said, the forex market is huge and no single participant can move price on its own, not even a central bank. A central bank can influence the market and price with its statements and policy decisions, but only to a limited extent with its own transactions.
There are multitudes of buying and selling interests at various price levels by different participants and for different reasons.
What actually moves the prices and in a smooth and continuous manner by providing the liquidity is the interbank market with its market-makers. These institutional market-makers constantly offer a bid/offer price for both buyers and sellers. (These market-makers also offer the bid/offer spread to your brokers that they then use to offer you a bid/offer).
These interbank market-makers also buy and sell between themselves. Their aim is, in principle, to remain neutral with their exposure and what they buy in they then sell out again - and their profit is from the spread between the two.
Obviously, whenever these market-makers are seeing more buying interest than selling they raise their offer price and vice versa when there is more selling pressure. So, in many cases, it is the market-maker who is (albeit temporarily) on the other side of participant positions.
For example, a company wants to buy dollars to finance a trade deal. He goes to his bank customer currency desk for a rate. The bank officer gets a price from his forex desk based on the present bid/offer rate in the market and adds on the customer’s margin. If the price is right then he buys the dollars. The bank desk then has to buy the dollars from the market at interbank rates or wait for another transaction which provides the dollars, in which case he gets them at his bid and sold them to the customer at his offer rate+customer margin.
So the bank - interbank market are the intermediates that are counterparties to many transactions and provide the smooth flow of price as the buying and selling pressures wax and wane.
The brokers are another kind of market-makers for their retail clients. They get their raw bid/offer rate from their liquidity providers (LP’s), usually major banks, then they wrap their own spread around these are offer it to you.
Because so much of the interbank internal transactions and speculative positioning are electronic, the price is extremely sensitive to changes in selling/buying interests and respond very fast.
This is a very simplistic overview, but hopefully gives some kind of picture of the overall pattern of buyer - intermediate - seller relationships which absorb changes in buying/selling pressures and reflect these in price changes which are always seeking to reach a balance point between the two sides.
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Its massive institutions and even governments moving from one currency to another due to economic factors. It is also hedge funds and retail traders analysing the market and using it to make an income based on what they see
I’m not talking about exchange rate speculation. The actual buying and selling of these goods
The FX market has no goods to buy or sell, which is what I trade…
The currencies
You are correct.
Forex is a decentralized and over-the-counter market in which prices are determined by the available bid and ask offers. While many factors influence price movements, five are particularly important:
- economic releases,
- political news and events,
- interest rate changes,
- GDP, and
- commodity prices.
Is this made public after the fact? Like quarterly returns for a publicly traded company?
Hi @samewise, thanks for the quesion.
I am not really sure what you are asking here, maybe you could explain more?
The forex environment as a whole is a market just like many others. There are lots of very different participants that use the market for many different purposes and with very different frequencies. Even changing your own currency for another when you go on holiday is part of this market.
The commercial banks offer foreign currency services as a core product within their banking services and the provision of a continous bid-offer for commercial customers and institutions is part of these currency services. It provides both liquidity and a smooth transition in price levels.
The banks provide public information on the results of their currency operations in their normal reporting procedures and also provide regular data to the Central Banks and regulatory authorities as required.
Is this what you were interested in?
Your question is based on a “flawed” premise. Allot of the responses are far too complicated. Got to keep it simple. You suggest number of buyers equals number of sellers which is not correct. The numbers of buyers is indeed equal to the number of sellers as defined by actual transactions conducted. However this does not define all the buyers or all the sellers in the marketplace. Entities offering to buy, entities offering to sell are also buyers and sellers respectively even though they may not have actually bought or sold anything. It is these buyers and sellers as well as the ones above that drive the market and as you can see from the other responses, there is a wide verity of them.
PS, Supply and Demand DOES drive the price. Don’t fight that basic tenet of economic theory.
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