I've been thinking about it lately. As we keep analyzing which way the currency prices are going, I'm wondering what actually drives the prices/values of every currency that we trade.
In stock/bond markets, prices are simply determined by "concrete" demand/supply; for example, how many bids and offers are there in that particular price. Let's say a stock is priced at Bid = $10.00 and Offer/Ask = $10.10. Once all the bids at $10.00 are finished/sold out, its price will go down to the next bid/ask level or 1 pip, and vice versa for offers.
Does forex work like this too? If it works like stocks, then how about the correlation between currency crosses? For example, if EUR/USD = 1.3090, GBP/USD = 1.9390, then EUR/GBP must be 1.3090 / 1.9390 = 0.6751. If all the prices of currency crosses are solely determined by "concrete" supply/demand, the above correlation won't work as each cross will fluctuate independently of each other, like in stock market (one stock fluctuates independently regardless of other stocks' transactions).
So, what does actually make the currency prices move? Money supply? Central banks determine them? When EUR/USD moves up by 1 pip, what does that imply? That all the offers at price 1 pip below it have been bought out by buyers, or it can move up or down without any transactions?
Sorry for the too-many-questions-thread, but I'm really curious about this. Thank you in advance for the answers!
In stock/bond markets, prices are simply determined by "concrete" demand/supply; for example, how many bids and offers are there in that particular price. Let's say a stock is priced at Bid = $10.00 and Offer/Ask = $10.10. Once all the bids at $10.00 are finished/sold out, its price will go down to the next bid/ask level or 1 pip, and vice versa for offers.
Does forex work like this too? If it works like stocks, then how about the correlation between currency crosses? For example, if EUR/USD = 1.3090, GBP/USD = 1.9390, then EUR/GBP must be 1.3090 / 1.9390 = 0.6751. If all the prices of currency crosses are solely determined by "concrete" supply/demand, the above correlation won't work as each cross will fluctuate independently of each other, like in stock market (one stock fluctuates independently regardless of other stocks' transactions).
So, what does actually make the currency prices move? Money supply? Central banks determine them? When EUR/USD moves up by 1 pip, what does that imply? That all the offers at price 1 pip below it have been bought out by buyers, or it can move up or down without any transactions?
Sorry for the too-many-questions-thread, but I'm really curious about this. Thank you in advance for the answers!
Tra-X
