how the big guys trade in forex?

I think most of us just trade like this: the current price is 1.5000, we now buy at 1.5000, and set a stop loss at 1.4000, and set a take profit at 1.6000...and after that, we just wait...until the price hits our tp or sl.

Actually, we do nothing after we enter the market, just wait...we can't force the price to move up after we enter the market...all we can do is to bless...

I just wonder if the big guys(such as central banks, hedge funds...) in forex also trade in this way. or will they continue to buy after their initial enter, to force the price to move to their targets?
I mean, will they just continue buying to push the price to a certain level? This will really affect the market move!

For example, I noticed on last friday, almost in the end of the day, there is a big move (upward) in eurusd, I think it's one or two big guys pushed it. what's their purpose?

any comments? and any evidence?

Some food for thought:

1. How big one needs to be to control this market of trillions?

2. How big one needs to be to just influence this market?

3. For how long one can keep this market under influence?

4. Is this guy a bank, fund, country or a region (group of countries)

5. How much wide a networking one needs to have to know the plans affecting currency prices?

6. How big a muscle one needs to develop to "make" the market?

7. Are there tussles among big guys and they also lose or win over each other?

8. Do big guys incur losses and go bankrupt at times or they always make profit?

9. Is making money really easy for big guys?

10. How big guys trade?

Maybe like small guys but with more prudence and caution. Take decision based on current and future known factors / conditions not on the basis of trend lines and fibs. Probably time they take in completing their entries and exits is more than the time a small trader remains in a trade. Probably they have to place several orders in both directions to get best possible price average. Probably they use several traders equipped with trading tools to get good price for them. Probably the last thing they want is to get trapped in poor deals with big money. Probably their portfolio is a mix of several different types of investments and their overall performance (profit/loss) is not dependent on outcome of one or few deals in one market. Probably for risk management purposes, their profit expectation is much less than that of small traders. Probably they have holding power unthinkable for a small trader. Probably they use time factor more effectively than small traders - wait months or years for right opportunity to enter, hold and liquidate. But I don't know. This is just some food for thought from an ignorant person.

in my opinion, sometimes, the big move of the markets is really made by one or two big players...
why they do it? to enter the market? or intend to push the market up (or down)?

This is an article taken from the "Independent" newspaper..


Man against machines: Trading company shares

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Hidden in the 'dark pools' of Wall Street, computers designed by stockbroking companies are revolutionising the way the equities market does business. Stephen Foley reports

Thursday, 6 August 2009

 

1. 
   Here's an irony. As America tries to bring some order to the derivatives market – the Wild West of Wall Street where the credit crisis germinated – and to force the trading of credit default swaps on to regulated exchanges, exactly the opposite trend has developed in an area of the markets that were once as civilised, transparent and orderly as could be: the trading of common or garden company shares.

Never before has the proportion of equity trades that go through the New York Stock Exchange been as low as it is today. In the past few months it has fallen to fewer than one third of all trades. Instead, orders are regularly routed though a new generation of trading platforms that do not always have the same requirements to show what investors are wanting to buy and sell. While television news channels still report the daily stock market moves from the floor of the exchange, the action is increasingly taking place in "dark pools" managed by computers, often designed by broking firms themselves, away from recognised exchanges.
Even more profoundly, the number of orders that come from traditional fund managers, who have decided to buy or sell a particular company share after thinking over its investment potential, has also never been lower. In the US, more than 50 per cent of all trades are now generated by computers, many inside hedge funds or other new trading firms, who are buying and selling small numbers of shares at very high frequency across these splintered trading platforms. By putting in orders every few milliseconds, they harvest millions of tiny profits that quickly add up to a bumper payday.
Computer trading is revolutionising the equity market in ways that are profound, but the fact regulators are only now catching up strikes many as profoundly scary. Under political pressure, Mary Schapiro, the chairman of the Securities and Exchange Commission, said the agency would consider banning one practice that has grown up since the rise of the machines – "flash trading". This is where exchanges and other share-trading platforms offer information about a customer's order to buy or sell shares to a select group of traders for a half a second before revealing it publicly. The idea is to find a corresponding seller or buyer to fill the order before the exchange has to give up on the trade, but critics say that split second is enough to give the select group enough secret data about the likely direction of a share price for their computers to use to make a quick penny.
The emergence of flash trading has been one of the unanticipated consequences of the explosion in high-frequency trading, which has been enabled by a succession of regulatory changes since the emergence of the first electronic trading in the 1980s. The trend went exponential in 2006 when the NYSE introduced electronic trading too; by 2008, the average volume of shares traded in the US every day had doubled, and the number of individual orders was up by 150 per cent.
"Well over half of average daily trading volume is now accounted for by high-frequency traders," says Sang Lee, of the consultancy Aite Group, who likens the development of sophisticated trading programs to an arms race. "This takes a lot of commitment: from sheer brainpower to get these programs written, to super-fast computers and even co-location facilities so you can put your servers ever closer to those of the exchange, so you can get market data fractionally faster and act faster on that data than other players."
Chuck Schumer, a New York Senator who applied political pressure to Ms Schapiro, said he feared what iniquities might have grown up during the explosion of new trading methods. "It is also important to make sure flash orders aren't just the tip of an iceberg lurking in the dark reaches of the market," he said. "There is a lot of mystery about what goes on in dark pools and in the realm of high-frequency trading generally."
He's right about that. Wall Street, always awash with conspiracy theories, loves to gossip about the conflicts of interest that big firms have in running both their own proprietary trading programs and some of the biggest "dark pools" where customer orders are routed.
But high-frequency trading and dark pools are quite different manifestations of the emergence of computer-based trading. Computer algorithms have long been used to work out how best to implement a customer's buy or sell order, perhaps by breaking it up into smaller parts so as to mask the demand and prevent it moving the market. Increasingly, the computers are showing that it is best to trade in anonymous "dark pools", which, unlike exchanges, don't have to show orders coming in and only have to report trades after they are done.
The SEC – and the Financial Services Authority in the UK, where both high-frequency trading and dark pools are so far less well established – are investigating what impact these dramatic shifts are having on the equity markets. In the US, they have undoubtedly brought trading costs down overall, as the spread between the cost of buying and selling a share has narrowed, but many players believe it has come at the expensive of market stability and has opened up much potential for abuse. Worst of all, if all trading is done in the dark, splintered between numerous trading platforms, how will anyone know the price of anything?
Announcing the SEC's investigation in June, Ms Schapiro pointed out that other irony: "If dark pool volume were to continue to expand indefinitely, their success could threaten the very price discovery function on which their existence depends."

hello,

i worked in a reuters dealing station as a backoffice specialist in a bank's headquarter.

reuters dealing station is one of the 2 main equipments banks use to trade forex, is like your home software with quotes showing, but a little different from that .

commercial banks ( these are those big guys you are talking about not some richs mobs) have dealers who take care of that.

some of their financial resources are indeed of speculative nature , in my bank structure it was like 25% of all liquid funds. but the rest of 75% are not speculative, but commercial money, needed to go to other bank for commercial papers,drafts, acreditives , etc, or exchanged for other currencies because client has to pay a wine import from france the bank needs to buy euro sometimes.

so banks juggle funds between needs of clients, location of funds they have and own speculative part they have.

but setting of tp and sl is even harder and tighter setting than you have.
dont make mistake of thinking if they are big boys they can set limits like an amateur , instead their dealers are proffesionals and we are amateurs most of the time, so the other way around.

the only difference is in size.

my bank was a small bank and minimum deal was at 500.000$ so 5lots, most of them of theu 2mio ( 2 milions $ ).

@ 2mil deal 1 pip is roughly 200$, a day salary for one dealer, and they did like 10-15 deals every day.

i hope i shed some light on this

Thank you, 3 cent...
I think it's really helpful to hear some comments from guys working at reuters dealing desk...
they have the evidence(records) to show if most of the buy actions at different levels are from one big guy or from totally different clients during a big move like the one in the end of last friday...

I still feel the big guys who can move the markets trade in a way not like us. we buy at 1.5000 and then wait...but for them, the forex market is like a war... some of them want to push the market higher and higher...they just keep buying (at different price) to push the price higher. it looks like they don't care how they exit the market to make profits. their purpose is just to make the price higher and higher...

on the other hand, some other big guys want to push it lower and lower... that's the war....

sometimes i just feel the market is really pushed continuely by somebody...they are not like us...for example, we buy at 1.5000 and wish the price to go up to 1.6000, but we can do nothing to help the price to go up... For the big guys, maybe they also entered at 1.5000 and also wish the price to go up to 1.6000, and, they really can do something(keep buying) to help the price to go up... or maybe they are central banks, they got the commands from their governments to push the price higher and higher?...
any comments or evidence?

up...up...up

While you're "doing nothing" waiting for SL or TP to be hit, why don't you watch the charts. Maybe you would sooner or later be able to exit a trade before SL is hit (take a smaller loss), or exit a trade before TP is hit (take what's on the table before price reverses and you exit at breakeven, with no profit)

What I'm trying to say is, unless you have a set & forget system with (almost) mechanical rules, you must follow your trade and watch for developments on the charts. Trade management? Sounds cool?

you pretting much got the basic concept right there, except those "big guys" aren't trading in the way we are, they are dealing. they are literally buying and selling lots of currency in the same way that you would sell a bunch of cars or some corn or whatever. they wheel and deal in order to get the best price and then try and get the price when selling it back. they arent just waiting for the market. they are pro-actively setting prices at which they will buy or sell. for example, john doe over at citibank wants to buy EURUSD and sell to make a profit later. right now, the average exchange price is 1.1234. he gets on his computer, or the phone and makes a deal to buy the currency at 1.1232. he makes the deal and immediately starts looking for someone willing to buy at a price higher than 1.1234. he finds a guy willing to buy at 1.1236. he has now made a profit of four pips. that sounds like a crappy profit until you realize that he made a deal for 80 lots (8 million) where each pip is 800 bucks. 800 X 4 is 3200. like 3cent said, he will continuously make deals like this all throughout the day, possibly racking up 20-30 grand. considering most large scale FX trading floors have between 30-50 traders per shift, the daily total is not bad at all.

so basically, just remember that these guys are DEALING, not TRADING. they can have "trades" that last five minutes or ten hours. they have an entirely different way of trading because they are actually controlling the real money and are able to name prices. things like spread and margin dont have the same meaning as they do to us.

also, i can confirm 3cent's statement about the guys using the reuter's trading station. i was able to visit the Deustche Bank NY FX trading floor once, and the trader's, no matter what other programs they used or liked better, all had the reuter's trading station open and running. it looked freakin awesome lol.

Thanks for the explanation in simple terms!

Nice thread.

So, if you have enough bucks you can get an "institutional account" & then you can trade from the Reuters trading station as well, right? Does anyone here have any experience doing that? Or know the details one way or the other?

I have thought about walking into the nearest DB or Citibank branch in my overalls with a big bag of money and asking to set up an institutional forex trading account. I'm not sure how this would go over. Prolly depends on the size of that bag....

You are talking about the market makers. They provide liquidity to the markets, buying and selling at the same time, and providing us with what we see as the spread.

Then there are the sales traders who just pass through clients orders and take a commission.

And finally the proprietary traders who play the market like we do.