Forex market is very huge and retail traders are on very small scale if we talk about volumes. Big players like banks and financial institutions make big moves by making trades with higher lots and that shakes the volatility.
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Who moves the market? forex question
- Thread starter acertablet
- Start date
Governments, central banks, and other financial institutions, big companies, and hedge funds all are big market players who make big transactions on a daily basis. We, retail traders, are also participants in the market. But since our transactions can’t really move the market, we trade using brokers that place our orders all together in the market.
More than 50% of the forex market comprises banks and financial institutions. Therefore, trading decisions by central banks directly impact the forex market.
Some points here seem valid, others not. It's true that a large portion of the FX liquidity is controlled by around 4-5 banks as mentioned (Citi, Deutsche, JP Morgan, UBS). These are the banks with the most connections to corporations, transacting with them for international trade and foreign currency conversions.
It's true that the big banks have a better visibility on order flow, but it's not really true that they monitor the retail positions in the market (As this is a very tiny portion of what's happening in the market). The banks will rarely take directional positions as they seek to profit from matching opposing order flows (Acting primarily as liquidity providers or market makers), thus profiting from the spreads.
On top of the spot FX desks, the derivatives desks in the banks create custom made structures (Using FX options, swaps and swaptions), sometimes worth hundreds of millions of dollars & sell them to corporates. Those structures act like selling naked or covered options, but they are much more complex as they might involve many legs spanning several months in the future and cannot really be exited as there is no market for them except to close them out with your counterparty. This is where the manipulation of the WM/Reuters fixing comes into place, as this WM/Reuters fixing is the basis for valuing those structures and determining if the structure would be a profit or a loss for the bank (And the corporate who bought that structure), hence the attempt to manipulate it as it makes or breaks billions of dollars in structured products the banks have in place.
Narafa, I'd always assumed all derivatives in play would be measured against the 10am NY cut not the fix? If so, why is it the case given the final valuation will be against the cut on expiry?
Central banks. They cover more than half of the forex market. There are other factors like politics, global trade, and socio-economic factors that influence the market.
Forex market is like big a big ocean and trades like you and I are like small fish. We can't make the market move, but I'm sure big central banks and financial institutions cause big movements in the forex market. Governments of all major economics in the world also move the market up and down through their decisions.