How do banks move markets?

We all agree that price movement in FX markets is predominantly controlled by the big banks of the world. Does anyone out there have any first-hand knowledge or experience on how banks actually accomplish this? Do they actually have to "buy" Euro and/or "sell" USD for EUR/USD to go up? Or do they just "quote" the price as whatever they want? Any suggestions for videos or books that speak accurately on this subject? Thank you traders!

Following with interest. Considering that we live in the era of fractional reserve banking, I wouldn't be surprised if the "just quote" scenario were the case.

They just trade being the sell side of the business. Large banks collect many big orders by large corporstions (the buy side) that need to hedge their FX risks arising from their exposure in Geographically different markets.
Banks collect that orders and “pass” them to the market. They do that like managing an inventory: they know the fixing they negotiate with the corps, so they have an average price of their inventory: they become risk takers, the risk being a long/short one (depending from the position sold to the corps) with a well defined average price (the fixing at wich they sold to them)
they manage that inventory risk acting like market makers (limit orders) for the 70-80% of that inventory, fixing the boundaries of a price channel with average price around the fixing, making the book; then they start to act like price takers, by buying/selling aggressively (market orders) according to their net exposure (the inventory risk as previously defined) thus profiting from it.

that’s what arise from my experience...

Under your Retail Client Agreement you are not actually "Trading" with "Banks" directly. In real terms you are trading against a market maker disguised as a "ecn/stp broker." ECN to where? STP to who? Banks and Model Funds don't trade in Mini and Micro lots. What a "Standard" lot means to a Bank .v.s. what it means to a Retail Trader are two entirely different things.

Your "Broker" (Market Maker) has a Line of Credit with a Bank. They use that credit to act as the counter-party on your trades. If you start trading in a manner consistent with someone who actually knows what they are doing instead of the typical "B-Book" gambler who will eventually blow their account in short order, your "Broker" (Market Maker) has no choice but to "A-Book" your trades and net you out somewhere else (passing on the risk).

Most Retail Traders never get out of "B-Book" territory and their orders never see the light of day in the real Interbank market. Your order never leaves the "Brokers" back-end server where "B-Book" trades typically go to die, eventually.

So, when you ask the question: "How do the banks move the FX markets." You are asking a question that belongs in an Interbank Market context, not a Retail FX Market context. Market Makers on your Retail Trading Platform have control over the spreads you see and indirectly the movement of price. You are being "enticed" to enter the market and thus, providing the liquidity Market Makers need.

A better thing for Retail Traders to do is to completely detach from the idea of trying to figure out what banks are doing. Instead, the Retail Trader is far better off teaching themselves how to Go With The Flow of whatever the "banks" are doing. If you have the right Indicators configured correctly, you can detect (see) where the "banks" are attempting to take the market - but you can much better see this when your Indicators are working in the larger time frames. Banks are not Scalping 100s of millions or billions of dollars on a 5 minute hot tip trade. Because their size is so large, they have to build their positions over extended periods of time.

Typically, when the masses are selling, institutions are buying - building a position. When the masses are buying, typically, institutions selling - once gain building a position. At some point, that "pattern" of institutional position building will result in what you see as a market on the move as price reverses and begins moving forcefully in the opposite direction relative to most Retail "Dumb" Money (that's what they call you as they laugh their way to profits).

The key for the Retail Trader is to learn how to determine the Dominant Time Frame, its Direction and its Historical (Relevant) Magnitude. The rest is Timing the entry. This is if you wish to be a Directional Trader who uses Stops. The more Advanced Trader does not have to take a Directional Position in the market at all, nor do they ever use a Stop.

An Advanced Trader does not take a naked Long or naked Short position - they Straddle the market at a very specific level and then allow Institutional Volume to sweep profits into their account. This removes the need to know Direction and reduces the trading equation down to Timing and Magnitude. No Directional component required and no Stop is used. They key is finding that special level in the market each day where Inflection takes place and no single Direction approach is ever necessary. Thus, you can trade in either Direction at will and generate profits as a result. I call it Near Zero Risk Trading.

Intersting, Thank You.

Thank you, Jet for your thoughts and suggestions on the subject. I certainly agree with most of what you explained. The original question though was more of how the banks actually make the bigger moves that we all see on our charts, regardless of broker misquotes or spread manipulation...a bigger picture kind of thing. We know our individual trades aren't moving the market very much, even all of us retailers combined. Banks do redistribute money back into the markets as needed based upon larger fundamental factors, making a lot of the longer term trends that we see, but I still wonder how much of the intraday moves that we see are actually buying and selling or if the banks are able to change the prices we see simply by colluding to agree to a change in price.

Because the FX market is decentralized, the large banks you speak of ARE the market. There is no central exchange, like in stocks, futures, or commodities, the market is made between the banks who also provide liquidity for the exchange to take place.

Thus the intraday (or any moves) are the result of these banks filling orders for their clients (big and small) transferring funds back and forth between countries, or exchanging one currency for another. Your profile says you are in the US...so I imagine you have purchased something that is imported from another country...am I right?

Lets say you purchased a Japanese car, (Toyota) or a Korean cell phone (Samsung) , or a German sound system (Bose). I'm quite confident that you paid for your product in USD, not Yen, Euros, or Won. So now imagine that all the USD profits from these companies must somehow be repatriated (sooner or later) to the parent company. This is especially true for the Yen (in Feb). All those USD must be converted to some other currency and of course the company that does it has a relationship with a clearing bank, and people to ensure that the exchange is made at the best possible price.

These companies contact their banks, who then contact the "market making" banks who place orders, and VIOLA!! price movement. These orders are filled, and the market starts moving. From small ticks to large moves its all about the orders flowing through the market, and in this case the market is a decentralized "agreement" between larger banks.

The more you know and understand about the process by how price moves the more you will understand that it is the flow of orders and volume through the exchange medium (also called "the market") and the mismatch between liquidity and market orders that create price movements...and yes the BIG banks are at the center of this.

That would be illegal.

Don's answer may be all you are after. If you still have questions, you could try reading some of FTI's ealier posts.

https://www.forexfactory.com/showthr...42#post1731842
https://www.forexfactory.com/showthr...48#post1735948

This is why this forums is simply priceless. I just learnt more on this topic by this previous post than in the last two years, no kidding. Congrats to the posters.

When big banks adjust their currency exposure and capital risks it can change prices because doing so requires conversion of what's worth tens of billions of dollars in equity.

As far as I understand, banks are the largest market participants, which can have a direct impact on the events. Firstly, they can dictate the value of shares of different companies, secondly, they can use big financial opportunities to increase interest in one or another asset, plus banks get good commissions due to the fact that people are bought through banks with certain assets. Banks also earn on their own quarterly reports when they provide the public with official data on their income, especially since they know their figures in advance and can immediately make the right decision or vice versa create a certain speculation.

This is a nice information

I think this is one of the best discussions that everyone needs to have because i believe these markets are somewhat automated bots.........When you start to research what is a bank institutions and what are the positions and roles inside of these banks you then start to wonder do they really move the markets at all? First of all to start from understanding that me being in a America and knowing the leverage for registered forex brokers in only up to 50:1 because that's all they are allowed to offer thru S.E.C. regulations then you wonder well then how are all of these other 500:1, 1000:1 brokers able to offer higher leverages in other places. You now understand they don't have any ties with government entities at all........Its their own personal money they are using and they are banking on you being a horrible trader. My forex friend in Las Vegas of 9 years had a partner that was so consistent with his trades and winning hundreds of thousands of dollars the broker wrote him an email in regards of they couldnt accommodate their account anymore because their skill set was too advanced lol

So now these large institutions that are always "hiring" need smart, well-educated traders to manage their accounts. I copied and pasted this following 1. & 2. message from online...

1. Undertake a master's degree program in finance, economics or business administration. Apply for internships after your first semester in grad school. An internship in the equities department of an investment bank or mutual fund would obviously be ideal if you want to be an institutional trader, but any finance-related experience will give you a leg up in your job search.
2. Apply for entry-level financial analyst or stock analyst positions. Having an MBA moves you up the totem pole a few notches, but you still must show your mettle before being given the responsibility of an institutional trader position. Almost all institutional stock traders worked their way up to trader from lower-level positions. Take and pass all of the required exams to become a registered representative/broker with the Financial Industry Regulatory Authority. Most employers offer employees fee reimbursement and training to help pass the exams.

So im supposed to believe that these are the individuals moving the markets? Do you know how much they get paid for these positions? So a person with this much power gets paid peanuts compared to Billion Dollar hedge fund managers? What happens when these institutional traders get sick or party to have fun and get drunk and call out to work who takes their place to make sure they have to move the markets every single day over and over and over again?

What if these markets just simply came from one source feed that was a bot or some type of frequency ? One thing i do know for sure that so many things i was told in life was a lie lol.........Everyone just runs with what other people say without doing their own personal research. The evil elite like the Rothchild's that control central banks, governments, presidents, etc most likely would never allow another human to be in control of their bank movements therefore it would make way more sense that there is just one single feed for each asset class that comes directly from their source and is transmitted to all of these different institutions that these hired traders try to trade day in and day out.

If the Italian Mafia knew their was actual people that had a huge position to move the markets then these 9 to 5 individuals that punch clocks with wife and kids be the easiest pray on earth to be extorted lol.

[quote]The more Advanced Trader does not have to take a Directional Position in the market at all, nor do they ever use a Stop. An Advanced Trader does not take a naked Long or naked Short position - they Straddle the market at a very specific level and then allow Institutional Volume to sweep profits into their account. This removes the need to know Direction and reduces the trading equation down to Timing and Magnitude. No Directional component required and no Stop is used. They key is finding that special level in the market each day where Inflection takes place and no single Direction approach is ever necessary. Thus, you can trade in either Direction at will and generate profits as a result. I call it Near Zero Risk Trading

Misleading at best...
A perfect way of "how not to trade"

It is amazing how beautiful worded statements like the one above can appeal to so many..... And therefor the reason why most are unsuccessful at fx trading.

Good take Jet, love the last bit. Snipper move right