I understand from School of Pipsology that retail trades do not move markets – we are just trading CFDs, not the underlying assets, it is big banks and institutions who deal in actual currency (spot market), and they move prices.
I assume CFDs in stocks also do not move markets – they are moved by real share trading. But who is trading huge amounts of real shares, and who is providing the liquidity? Is it also big banks, institutions?
What about indices? An index is a collection of stocks with different weightings. When you buy a real index, you are spreading your money across a range of real shares. CFDs on indices of course do not move markets either. So what moves them? Is it also big banks and institutions dealing either directly in the index, or in the company stocks belonging to the index?
What about commodities, like gold. Are big banks and institutions literally trading physical gold minute to minute? I find that hard to believe.
Finally, the reason I ask all this is – do stocks, indices, commodities move in the same principles as forex markets? E.g. support resistance, runs and pullbacks, ranges, breakouts. So should we trade them the same way as forex markets? Why do they move like this? Because big banks and institutions are trying to profit off of small price changes, just like forex?
You’ve got a bunch of great questions covering different angles of the market, so get ready for an answer of the same ilk. Picture the financial market as a big, bustling city, where the hustle and bustle are all about buying and selling based on what everyone thinks is valuable. This whole scene is mostly influenced by how much people want something (demand) versus how much of that thing is available (supply). The big players, like banks and hedge funds, along with important events like company earnings or economic news, really set the pace.
Stocks: Think of these like popularity contests for companies, with their value going up or down based on how much they’re traded, what they’re doing, and how people feel about them.
Indices: These are like the city’s billboard charts, showing how a group of stocks are doing overall, with the big investors playing a major role in their movement.
Commodities: These are your basic goods, like oil or gold. Their prices change based on global needs and situations, including what big traders are doing and external factors like politics or the weather.
Who’s Who:
Institutional Investors: These are the market’s heavy lifters, moving prices with their large trades.
Market Makers: They’re like the shopkeepers, making sure there’s always something to buy or sell by managing the flow of assets.
No matter if you’re looking into stocks, currencies, indices, or commodities, the game’s rules—like understanding trends and patterns, and where prices might bounce or break through—are pretty universal. But, it’s crucial to get the vibe of each market you’re in, knowing what makes it tick, and always playing it safe with your investments.
In a nutshell, while every market has its own flavor, the underlying psychology and strategies remain pretty similar. This gives traders a common ground to stand on, letting them adapt their approach to fit each market’s unique rhythm.
To begin with, sorry, your idea of what moves the forex market is wrong.
I think most of your post is questioning where is liquidity coming from?
Liquidity is mainly due to institutional order flows which major these days are programmed to be carried out by trading bots. And most of the order flows are due to customer orders.
Then another part of your post is your question is what makes the market move.
The market moves because it is a two way auction machine with buyers vs sellers. When you enter or exit the market you have the option of placing market orders (buy or sell now at best price) or pending orders. When the volume being traded on the buy side market orders (buy now) is exceeding the volume of sell pending orders above current best price then the price moves up. Conversely when sell market order volume (sell now) exceeds the pending buy orders the price moves down.
Then how does is the price of CFD’s tied to the underlying asset? This is due to the overall efficiency of the interrelated markets. If and when a pricing inefficiency occurs institutional trading robots quickly step in and take an arbitrage trading opportunity to bring prices back into alignment.
So in conclusion no matter what financial market you are trading and through what method. Eg Forex CFD’s, Equity Index on Futures Exchange or Stocks on Sock Exchange or any other option you can dream of. Each is a complex two way auction market machine.