Just curious, because traders' profits come from banks. The world as a whole is a bucket shop.
Ignored
All traders will not, because they can not, win (simultaneously). I should preface this by saying this statement holds true in spot FX and futures/options. This does not include stock markets.
This reason is simple once you grasp it, but it can take a while to wrap your mind around. In FX markets, there is always a counter position (or contra-position) in play opposite every other position. In order for you to enter a long position, somebody else must enter into a short position. There are no "naked" or independent positions. This means that for every dollar gained, there is an equal dollar lost. Ergo, the total dollars in play will remain the same provided the number of positions is static (unlikely). The dollars will just change hands.
This is unlike stock markets in which everyone can win if everyone buys, holds, and stock prices all appreciate. This is commonly known as a bull market. All of the "long" positions enjoy the appreciation of stock prices and everyone holding these stocks sees in increase in their net worth. No one is losing since there are no contra-positions. In other words, if you buy a share of stock, nobody had to short you that stock. Your long position is independent of all other parties, unlike FX where somebody must be short when you are long.
Traders profits do not always come from banks. They always come from the trading accounts of the positions which have lost value and flow to the trading accounts that have appreciated in value. Money just changes hands in FX (and futures) markets. Banks make money by charging a spread or commission or both. However, banks may have taken contra-positions and lost - their value decreases. But usually the big players, including banks, come out on top. When was the last time you heard of a multitude of small traders taking down a gigantic bank's trading fortunes because of their collective market prowess? This is an unlikely event in deed.
As for your last comment, about the entire world being a bucket shop, I do not know how to appropriately respond to that comment. I think it is short-sighted, over-simplified, and due to a lack of market knowledge. For the most part, markets in developed nations are fair and orderly in the sense that liquidity problems are rare (not fair in the sense that you have a "fair" chance of making profits, because you don't - information is assymetrical). Seldom do market makers outside of retail FX need to play games with their clients' accounts. In many countries, this is blatantly illegal.
All traders will not, because they can not, win (simultaneously). I should preface this by saying this statement holds true in spot FX and futures/options. This does not include stock markets.
This reason is simple once you grasp it, but it can take a while to wrap your mind around. In FX markets, there is always a counter position (or contra-position) in play opposite every other position. In order for you to enter a long position, somebody else must enter into a short position. There are no "naked" or independent positions. This means that for every dollar gained, there is an equal dollar lost. Ergo, the total dollars in play will remain the same provided the number of positions is static (unlikely). The dollars will just change hands.
This is unlike stock markets in which everyone can win if everyone buys, holds, and stock prices all appreciate. This is commonly known as a bull market. All of the "long" positions enjoy the appreciation of stock prices and everyone holding these stocks sees in increase in their net worth. No one is losing since there are no contra-positions. In other words, if you buy a share of stock, nobody had to short you that stock. Your long position is independent of all other parties, unlike FX where somebody must be short when you are long.
Traders profits do not always come from banks. They always come from the trading accounts of the positions which have lost value and flow to the trading accounts that have appreciated in value. Money just changes hands in FX (and futures) markets. Banks make money by charging a spread or commission or both. However, banks may have taken contra-positions and lost - their value decreases. But usually the big players, including banks, come out on top. When was the last time you heard of a multitude of small traders taking down a gigantic bank's trading fortunes because of their collective market prowess? This is an unlikely event in deed.
As for your last comment, about the entire world being a bucket shop, I do not know how to appropriately respond to that comment. I think it is short-sighted, over-simplified, and due to a lack of market knowledge. For the most part, markets in developed nations are fair and orderly in the sense that liquidity problems are rare (not fair in the sense that you have a "fair" chance of making profits, because you don't - information is assymetrical). Seldom do market makers outside of retail FX need to play games with their clients' accounts. In many countries, this is blatantly illegal.
-=DAVE=-
Ignored
Nice post Dave
In short words, the majority of the retail players of any commodity markets are used as liquidity and profit providers for the profiting and hedging players.
What happen if 30%, 50% or 70% percent of the retail traders take the "right position" at any given moment and pair. And the banks are the counter parties of those positions thus creating an imbalance in their orderflow and inventories. Answer: they move the market in order to trigger the majority of their stops. A "similar" case happens in a smaller scale with any given deal desk broker and their clients.
Remember that all retail traders are just 2% of the total volume of the spot forex and each of the top banks of the world represent 2%-19% percent of the total volume. Just imagine a sardine or a shoal of sardines trying to overtake barracudas, sharks and orcas. Banks and large players will never lose to retail traders
In short words, the majority of the retail players of any commodity markets are used as liquidity and profit providers for the profiting and hedging players.
What happen if 30%, 50% or 70% percent of the retail traders take the "right position" at any given moment and pair. And the banks are the counter parties of those positions thus creating an imbalance in their orderflow and inventories. Answer: they move the market in order to trigger the majority of their stops. A "similar" case happens in a smaller scale with any given deal desk broker and their clients.
Remember that all retail traders are just 2% of the total volume of the spot forex and each of the top banks of the world represent 2%-19% percent of the total volume. Just imagine a sardine or a shoal of sardines trying to overtake barracudas, sharks and orcas. Banks and large players will never lose to retail traders
Ignored
Thanks Khil, I appreciate the kind words!
Your last sentence is excellent. I think that many people trading stocks, futures, FX, options, etc. forget that they are playing in somebody else's sandbox. This isn't a game to the big boys. This is not a 401(k) plan for them, or a way to make a few hundred extra bucks scalping NFP numbers.
If anyone has had the opportunity to spend some time with a local trader, you'll know what I mean. Somebody who trades in the pits in Chicago or on the floor in New York. These guys have expensive lives. They have expensive wives, expensive girlfriends, expensive hobbies, expensive homes, and when they order wine at dinner they sure aren't going with the $4.99 glass of merlot. They need to trade to generate substantial income. For the time being, I can only aspire to play at their level. Tonite maybe I'll splurge and go with a full-bodied cabernet, shouldn't be more than $38 per bottle!
This reason is simple once you grasp it, but it can take a while to wrap your mind around. In FX markets, there is always a counter position (or contra-position) in play opposite every other position. In order for you to enter a long position, somebody else must enter into a short position. There are no "naked" or independent positions. This means that for every dollar gained, there is an equal dollar lost. Ergo, the total dollars in play will remain the same provided the number of positions is static (unlikely). The dollars will just change hands.
-=DAVE=-
Ignored
Nope, if every long = short then price woun't move...simple demand and supply law
On stock not everyone wins, what happens if you buy on the top?
If I buy, in spot fx, at 200 and I close it at 202, i win 2 pips, and if you buy it at 202 and then goes to 204, you win 2 pips too. See, we are both winners...
"Abandon all hope, you who enter here"
La Divina Commedia, Dante Alighieri
Nope, if every long = short then price woun't move...simple demand and supply law
On stock not everyone wins, what happens if you buy on the top?
If I buy, in spot fx, at 200 and I close it at 202, i win 2 pips, and if you buy it at 202 and then goes to 204, you win 2 pips too. See, we are both winners...
Ignored
You are missing the point. In order for there to be a transaction, somebody has to enter long, and somebody else has to enter short. This has nothing to do with price movement. Price moves because the two parties agree to buy/sell at a different price than the previous trade.
I do not know how to make this any simpler.
I did not say everyone is guaranteed to win in stocks. I said everyone CAN win because there are no contra-positions. There is no requirement that somebody takes the opposite side of your transaction. Once you buy from somebody, that seller is out of the game. Not so in FX. When you buy Euros, somebody had to short them to you - both of your positions are intertwined and someone will lose pips while the other side will win those pips. For every dollar gained there is an equal dollar lost.
Now let's analyze your example. If you buy at 200 in spot FX, guess what? Somebody had to short that currency to you at 200! They are still in the game! The seller does not get to freely walk away. Now you close out at 202. You made 2 and the short position lost 2, net is zero (-2 + 2 = 0).
When you close out, you really sell to some other party and this offsets your position - you're now flat. But, if price goes to 204, the original short (at 200) is now down 4, and the person you sold to (who went long at 202) has made 2. The net pips (dollars) is still zero (-4 + 2 + 2 = 0).
Yes, the long positions would have won in this example. The contra-positions would have lost - once again the net dollars gained and lost is always zero in retail FX.
Your example would hold true in the stock market. I buy at 200 and price goes to 202. I've made 2! No one lost because I simply bought what somebody else had in their possession that I exchanged for dollars - I paid them 200 for their shares. When I sell at 202 to somebody else, and price goes to 204, that other person made 2. Yes, we're both winners and there are no losers (unless you count the opportunity cost of selling at 202 when price went to 204). This is only true in stock markets. Additionally, when trading on margin in the stock market in order to short stocks, things begin to look a lot more like the workings of retail FX and futures since a short sale REQUIRES a long position and now the two sides are intertwined in which only one side will win.
You are missing the point. In order for there to be a transaction, somebody has to enter long, and somebody else has to enter short. This has nothing to do with price movement. Price moves because the two parties agree to buy/sell at a different price than the previous trade.
I do not know how to make this any simpler.
I did not say everyone is guaranteed to win in stocks. I said everyone CAN win because there are no contra-positions. There is no requirement that somebody takes the opposite side of your transaction. Once you buy from somebody, that seller is out of the game. Not so in FX. When you buy Euros, somebody had to short them to you - both of your positions are intertwined and someone will lose pips while the other side will win those pips. For every dollar gained there is an equal dollar lost.
Now let's analyze your example. If you buy at 200 in spot FX, guess what? Somebody had to short that currency to you at 200! They are still in the game! The seller does not get to freely walk away. Now you close out at 202. You made 2 and the short position lost 2, net is zero (-2 + 2 = 0).
When you close out, you really sell to some other party and this offsets your position - you're now flat. But, if price goes to 204, the original short (at 200) is now down 4, and the person you sold to (who went long at 202) has made 2. The net pips (dollars) is still zero (-4 + 2 + 2 = 0).
Yes, the long positions would have won in this example. The contra-positions would have lost - once again the net dollars gained and lost is always zero in retail FX.
Your example would hold true in the stock market. I buy at 200 and price goes to 202. I've made 2! No one lost because I simply bought what somebody else had in their possession that I exchanged for dollars - I paid them 200 for their shares. When I sell at 202 to somebody else, and price goes to 204, that other person made 2. Yes, we're both winners and there are no losers (unless you count the opportunity cost of selling at 202 when price went to 204). This is only true in stock markets. Additionally, when trading on margin in the stock market in order to short stocks, things begin to look a lot more like the workings of retail FX and futures since a short sale REQUIRES a long position and now the two sides are intertwined in which only one side will win.
Hopefully this helps.
-=DAVE=-
Ignored
In my humble opinion, there is volume limited for buy and sell for each pair. And the changing in volume is faster than price changing. Only bank traders know the volume. For online trader like us may not know. When the buy volume is getting lower and lower, there will be increase in sell volume. And at this time if there is sudden sell big orders, the price will fall hard vice versa.
In my humble opinion, there is volume limited for buy and sell for each pair. And the changing in volume is faster than price changing. Only bank traders know the volume. For online trader like us may not know. When the buy volume is getting lower and lower, there will be increase in sell volume. And at this time if there is sudden sell big orders, the price will fall hard vice versa.
hope anyone can clarify my opinion.
Ignored
Kipper,
Yes, volume certainly places constraints on price levels. Price is trading right now at a point that both buyers and sellers agree on. Simple. When volume at a given level dries up, price will have to move - that is, buyers and sellers will agree on new prices. Nobody right now wants to buy GBP/USD at 2.200 - there is no volume at that price level, therefore there will be no trades at that level.
Volume and price changes happen because they're related. Price changes happen because of traders opinions and supply/demand factors (I guess you can say that is volume). Therefore, price isn't changing slower than volume, it is changing because of volume.
I do not know if banks have full access to 100% of the orders out there. I'm sure they know what is on their own books, but there isn't a single market maker or specialist operating a single order book for a given currency. Each bank is, according to my understanding, a market maker by itself. I don't know if all banks know all of the orders outstanding, this seems very counter-intuitive to me. I do not think JP Morgan chase would reveal to Bank of America what is on its books and expect BoA to return the favor. Retail traders, however, definitely have the least amount of volume information.
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Joined Oct 2006
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Status: always protect yourself
|129 Posts
The difference is only a difference if you treat money special, which obviously is impossible when trading currencies.
You're shorting the dollar when you're buying GOOG/$ or AAPL/$, just as you're shorting the dollar when you're buying EURO/$. There's no free lunch.
Not everyone is going to win, and then turn around and remove all of the money from their accounts at the same time. No one trades their whole account.
i don't wan't to enter in an argue here, youre getting it all wrong...
as every asset, dolar, euro and every other currency's price moves after the demand and suply law. it's the simplest economic law
from wikipedia
Quote
Disliked
The laws of supply and demand state that the equilibrium market price and quantity of a commodity is at the intersection of consumer demand and producer supply. Here quantity supplied equals quantity demanded (as in the enlargeable Figure), that is, equilibrium. Equilibrium implies that price and quantity will remain there if it begins there. If the price for a good is below equilibrium, consumers demand more of the good than producers are prepared to supply. This defines a shortage of the good. A shortage results in the price being bid up. Producers will increase the price until it reaches equilibrium. Conversely, if the price for a good is above equilibrium, there is a surplus of the good. Producers are motivated to eliminate the surplus by lowering the price. The price falls until it reaches equilibrium.
:same thing happens to currencies, and all goods.
In order to clarify this, here is the link If you still don't get it, then buy an Economy 101 book, or something like this
Hopefully this helps
"Abandon all hope, you who enter here"
La Divina Commedia, Dante Alighieri
i don't wan't to enter in an argue here, youre getting it all wrong...
as every asset, dolar, euro and every other currency's price moves after the demand and suply law. it's the simplest economic law
from wikipedia
:same thing happens to currencies, and all goods.
In order to clarify this, here is the link If you still don't get it, then buy an Economy 101 book, or something like this
Hopefully this helps
Ignored
Semar,
I am going to repeat myself many times in this post.
You are not understanding what I am saying. You think I am disputing supply and demand. This is absolutely not the case. I am not disputing supply and demand. How you got that in your head I do know, nor do I want to know. Of course supply and demand laws govern price levels.
I am saying that in order for there to be a TRANSACTION (i.e. a trade) there must be a seller and a buyer. For every long there must be a short. Please tell me where you decided to turn that into me refuting supply and demand? I am not violating supply/demand.
A buyer needs to buy FROM somebody! That somebody (the seller) needs to sell TO somebody (the buyer). We cannot just buy something out of thin air. Nor can we sell into thin air either.
Do you understand what I am saying now? Prices can move with an equal number of buyers and sellers - they just agree to buy and sell at a different prices based on new assumptions about relative performance in the future.
There may be more individuals who WANT to buy than there are available sellers at a given price, in this case price will increase according to supply/demand. The same is true of price decreases, more individuals WANT to sell but not enough buyers exist at current prices. They agree to different price levels. But, and pay attention because this is the point you are missing, for a transaction to take place (in spot FX), there needs to be two sides: a long and a short (buyer and seller). Period. This is all I was saying in my previous posts. I was not implying that supply and demand laws are invalid.
This is your quote from post #5:
"Nope, if every long = short then price woun't move...simple demand and supply law"
Again, this is not what I am trying to say!! I'm saying that for somebody to enter the market long, another party has to enter the market short AT THE SAME PRICE. This does not mean that prices will remain static. Prices will move because EACH buyer/seller pair agrees to a different price than was agreed upon prevously by a different buyer/seller pair.
Buyers and sellers can advertise their prices all they want. If the two sides cannot agree to a common price, there will be no transactions.
Semar, I am at my wits end - I do not know how to make this any clearer. I do not see the value in arguing about this, but we are not on the same page. Please tell me if I am not making my point understandable, I apologize for being unclear. I am not, I repeat not, indicating that supply and demand laws are violated by correctly stating that a buyer and seller must agree to a common price in order for a transaction to take place.
Comments and questions are, as always, more than welcome.
The difference is only a difference if you treat money special, which obviously is impossible when trading currencies.
You're shorting the dollar when you're buying GOOG/$ or AAPL/$, just as you're shorting the dollar when you're buying EURO/$. There's no free lunch.
Ignored
No, you are selling dollars, not shorting them, when you buy GOOG or AAPL. There is a huge difference. When you sell something short, you do not own the thing you are selling. You eventually have to replace what you sold short to the original owner.
When you buy gasoline, you are buying gasoline by selling your dollars to the gas station - you aren't shorting anything. When you buy a computer, you are selling your dollars to the computer store in exchange for a computer. You aren't shorting dollars, since you had to own those dollars in the first place.
A good example of short selling is a mortgage. A bank gives you money, which you sell in exchange for a house. You did not sell your money, you sold the bank's money. You must now replace the money you borrowed from the bank in the form of monthly payments. This is a short sale. In fact, any loan you receive can be thought of as a short sale of money.
A better example would be shorting stock. You borrow stock from somebody else and sell it in the open market. You have now received dollars in exchange for stock. However, at some point you must replace the stock since you borrowed it (it wasn't yours in the first place). Hopefully for the short seller, the stock price decreases.
You are shorting dollars when you buy EUR/USD and you're right, there is no free lunch.
Semar,
Again, this is not what I am trying to say!! I'm saying that for somebody to enter the market long, another party has to enter the market short AT THE SAME PRICE. This does not mean that prices will remain static. Prices will move because EACH buyer/seller pair agrees to a different price than was agreed upon prevously by a different buyer/seller pair.
Ignored
Exactly from what i underline above. it doesn't need someone to enter short, someone just need to close it's long. (closing a long is done by an "exit" short)
Hope now I made my self more explicit
"Abandon all hope, you who enter here"
La Divina Commedia, Dante Alighieri
Exactly from what i underline above. it doesn't need someone to enter short, someone just need to close it's long. (closing a long is done by an "exit" short)
Hope now I made my self more explicit
Ignored
There are three possible situations
If you go long, then the counter party must be one of these situations
1. enter a short entry position
2. take profit(sell) from a previous long position
3. stop loss(sell) from a previous long position
Exactly from what i underline above. it doesn't need someone to enter short, someone just need to close it's long. (closing a long is done by an "exit" short)
Hope now I made my self more explicit
Ignored
As long as you are stating that by an "exit" short you realize that you "exit" short TO somebody, then we agree. When you are long, you need to sell to somebody else. There must be a buyer willing to accept what you have for sale. If you cannot sell to somebody else, no trade takes place.
Yes I believe you have made your case clear. Thank you for the lively debate.
In this business, despite it's zero-sum nature, there are win-win situations.
Ignored
Absolutely. If I need to generate thousands of dollars in short-term losses for tax purposes, I'll just start trading wildly! That way, somebody else is sure to win, I'll lose pips, and we both come out ahead. I get to take a short-term capital loss and somebody else makes $.
On a more serious note, hedgers can benefit even from losses in futures/forex. Or somebody may be travelling overseas and therefore needs to convert dollars into pounds, when they come back home they need to convert pounds into dollars. Even though the GBP or USD may have moved unfavorably for them during their trip, you certainly cannot use pounds for legal tender in Cleveland.
