I know this will sound like a question with an obvious answer, but I can’t see it myself. The question is: What actually drives the price up and down moment by moment? In theory, demand moves prices, but when I think of that I am thinking of markets where sellers deal directly with buyers and even then, if a kumquat seller is not selling enough kumquats, he will reduce his price but only after enough time as gone by to see there are no buyers at that price.
How does this work in the foreign exchange markets when prices fluctuate every ten seconds and the buyers and sellers never meet? What mechanism that connects buyers and sellers through a proxy could possibly change the supply of anything every 10 seconds?
What is the mechanism that does this? The prices we see on our trading screens are given to us by our brokers, right? But who gives them their prices moment by moment and how is it measured so accurately and so quickly? If say, someone buys a currency at 11:42:56 am, how does that action contribute to price moment and how does it contribute so quickly?
Just like your kumquat seller, forex market makers adjust prices constantly attempting to find volume. They are in the business to make the spread as often as they can, so it behooves them to set prices where there is the most interest to buy and sell.
that’s something I’ve wondered about. I can see the big money causing big moves but what causes something like 5, 10, 15 pip moves on a pair like gu. just little fluctuations like that? is that lots of little people like us? or a few big ones?
If you made one big trade, how big would it have to be to make a pair move say 10 pips?
Oh, I disagree. Knowing why things happen can be very useful. In fact, it only makes sense to understand why things happen if you really want to increase your chances of long term success. I’m willing to bet that all the really successful traders know exactly how the mechanism works and why. And I am also willing to bet that all the traders who lost their shirts, or gave up, never really understood the mechanism underpinning this whole game.
If you believe that, you are in for a world of hurt. What you are really saying is you have no clue how the system works, and you don’t really want to find out because you think you know all there is to know to become rich. There’s one born every minute.
IMHO it depends what type of trader you are. If you are mostly a fundamental trader then what makes the market move would be more important. Whereas a technical trader requires the knowledge of why the market moves
Limit orders, Stop orders, and market orders move the market. Traders enter the orders and the wires of the world transmit it fairly uniformly throughout the world which prompt other traders to enter orders and so on and so on.
Why do the traders enter their orders? Sometimes it is easy to tell why, like after a news event, and sometimes it is difficult because everyone has their own method of making (or losing) money.
I think if you are going to do something like forex, you should know everthing there is to know about it. The less you know, the greater your chances of being part of the 95%. I haven’t graphed it yet, but there is probably a correlation.
I don’t want to feel smart, I want to be smart. Feelings are illogical and have nothing to do with it.
I want to make money too.
Those two goals are not mutually exclusive.
Well… I’m smart already, the degree is evidence of that I suppose but that’s irrelevant.
unrelated to 4x but speaking of smart, anyone get bored on long trips? It’s fun to try and calculate the length contraction and time dilation of the vehicles around you.
The so-called burn rate, which is the average number of days that a $10,000 trading account will last is down to about 5 days by now. Thanks mostly to colored light services and “know it all” noobies thinking they can take short cuts.
Theres lots of different reasons why markets move.
The fundamentals range from a bad GDP report, to for example, India deciding to buy 100 billion US dollars.
But at the same time there are banks and traders buying and selling currency to try and profit. If people are buying, price goes up. More people see price going up and so they buy too…
It really doesn’t matter why and is impossible to trace each little movment to a certain event that made it happen.
The main thing is to try to work out where the market is heading before it does
Thanks for the tip Pippy… I’ve been doing alright though, but thanks for caring.
Perhaps an argument supporting your point of view might be more helpful than simply denying what I’m saying.
Implying that I’m an sucker might also make you feel smart but I wonder how it affects your bank account… we seem to have a pattern here (… pun intended)
The argument is simple. Know before you jump in, rather than take the view that knowing does no good and is only for making people “feel smart”. How can that approach work in anything? Certainly not in the financial world.
A good symbolic analogy would be derivatives and mortgage backed securities. Large institutions, and even some savvy investors, like pension fund managers, got badly burned in this crisis because they didn’t really know how those instruments were put together. Their attitude was like yours, not to care how it really worked, only that it did work, and they would make them money. If only they knew how it actually worked, they wouldn’t have invested. If only they knew about the role of the ratings agencies, and the role of banks in giving out subprime ARM mortgages they might not have bought those securities knowing just how toxic they were. They knew how to buy them, and how they were supposed to be profitable. But they didn’t know how things really worked behind the scenes. For that lack of curiosity they paid dearly.
While forex trading is not shady like that, that is not the point being made. The point is that novice investors should feel they actually understand the behind the scenes mechanism before they invest. The devil is in the details and knowing those details might give a heretofore ignorant investor some insight needed to make the smart move, or no move at all. The best way would be to work for a brokerage, or in some capacity inside the system to see how it really works. The second best thing is to ask and to keep asking until the whole thing starts to make sense. But not knowing, and not wanting to ask, and not caring what the answer is, and deriding anyone who seeks to know, is indefensible.
Warren Buffet famously said recently, “If you don’t understand it, don’t invest in it.”
Before I invest in the forex, I want to understand it as much as possible. Just because I know how to press the Buy button, doesn’t mean I know what I’m doing.
Thanks Matt. I know virtually nothing about currency trading nor any other aspect of global finance, it’s pretty much Greek to me, but if it is possible to make money trading in these things, I would like to find out how. Unfortunately, finding out how means studying something that is very complex and quite possibly, I fear, beyond my intellectual capabilities.
Fortunately, I have the time to invest, and the money to start. Unfortunately, what I don’t have is an understanding of the basics, but more importantly, I lack an understanding of the finer points that I believe are necessary to actually make money in a very complex and highly competitive game. My demo trading is proving that. LOL.
