How does forex price move?

How does the currency value move when for every trade to take place, there is a buy and a seller?

So by right the price should remain the same?

price won't remain the same because the person you are buying it from demands a profit (ideally). For example, if you buy eur/usd at 1.2750, you are going to want a profit. The profit level is what you determine you can make off it, say sell it to a buyer at 1.28 for 50 pips. So price will move up if there are more buyers than sellers and down if there are more sellers than buyers.

Buyers are groups of people that want something in limited supply. Demand is High + Low Supply = Higher Price

When bad news hits the wires and everyone wants out then...
Demand is Low + High Supply = Lower Price

I have often wondered about what determines the incremental price movements up and down, but have yet to figure that part out. I leave it to bank asking price.

I wanted to add that I think the average retail trader is too small to influence the direction of the market, especially compared to levels or velocity of movement that central banks determine are excessive. During the Great Financial Crisis, the Australian Central Bank bought yards and yards of aud/usd to slow the descent, and finally it bottomed out around .55 cents. As price climbed the CB start unloading around .80 cents, and ended up making a very nice profit. The Swiss are known to do the same thing, most recently during the decline in the eur/chf. George Soros did this against the Bank of England, and won. However, when he tried it with Ireland he lost. Knowing that we can't influence price, we have to kind of watch out for what the big players are doing.

Hope this helps.

On http://www.forexfactory.com/showthread.php?t=7484 Darkstar explains it. It's enough to read first 7 posts


Thank you for your time,
Albinas

Thanks Albinas, I read that post when I first started trading, and it was refreshing to go over it again.

Thank you, the Darkstar link is very informative! It explains about spreads and slippages

Basic: http://www.forexfactory.com/showthre...50#post3884750

detailed: http://www.forexfactory.com/showthread.php?t=247606

Very good question posed by mindreality, and essential to understanding what you see on the charts.

While the information referenced here is good and relevant, it is perhaps not specific enough to turn into an answer to the question "How can my understanding of how/why price moves add to my success and profitability as a trader?"

It is essential with a more in depth understanding of how the market works. The fx market is a limit order market, to a large extent controlled by a relatively small number of dealing banks.

What does that mean, and how could it be turned into profitable trading? Instead of writing an essay, I'd like to refer you to the work of Carol Osler:

http://people.brandeis.edu/~cosler/

Click on the 'Research' button in the right hand column and you'll get a list of very relevant reading.

Hope that helps.

The detailed link is informative too.

Are they talking about 1000 lots when they talk about a 100 million order?

Yes. And i second Osler's papers if orderflow interests you. If Osler is going over your head check out "trading and exchanges" by Larry Harris for in-depth market micro-structure details.

if a good or bad news comes,do banks also take it serious as we small traders do.because this the bank who influence the market.

Demand and supply is the core factor responsible for the movement of forex prices. But together with demand & supply human expectations play a great role. As different people have diff opinions about various political factors so they expect diff movements and price go where the bulk of traders think it will.
There are also many fundamental indicators like non farm payrolls, CPI, retail sales, interest rate decisions the release of which affects the price movements.
Also in case of occurrence of some world events, meetings, quotes & commentary, prices can show movements which are different from their ordinary course.
So, all these factors cause market volatility.

Market prices basically respond to major news from the big central banks. For example if upcoming US macroeconomic data are strong enough to convince traders there will be interest hikes by December, the dollar will rise up.

Price is nothing more than an advertizing mechanism. It's its part of the "price discovery process". The Price/ticker/quote is advertizing. It moves to solicit and encourage trade (looking for a response) It moves in search of participants in order to facilitate trade. Different prices at different times attract different TF participants. Price auctions too high in search of sellers and auctions too low in search of buyers. If no orders are placed price will definitely move. That is the purpose of auction markets, to facilitate trade. If no orders are placed price will auction up & down (price discovery) looking for new participants or move to an attractive enough price to get the participants already holding trades to change their position.

Price discovery is what gets a specific buyer and specific seller to move from establishing a general price to agreeing on a specific price for their transaction, based on the size of the transaction, location of the transaction, cost of the transaction, and many other factors. It is a dynamic process, and in a way, it is the true mission of any market and any exchange.

Price discovery is one of the central functions of financial markets. In the market microstructure literature, it has been variously interpreted as, the search for an equilibrium price (Schreiber and Schwartz (1986))

Price moves because it is a function of the Auction Process……...

Q: How does forex price move?

A: In Retail Forex, the price moves in the direction that will cause the greatest financial damage to the greatest number of accounts.

The buying and selling is not what drives the price its the supply and demand.

When there is high demand for a currency the the market makers (banks) will drive the price up my increasing the offer. Lets say the current price of AUD/USD is .75000/05. If you want to buy AUD you will be buying it at the banks offer of .75000 plus the .0005 spread.

When buyers out number seller the banks will keep on increasing the offer which is what drives prices up.
When there is too much supply its reversed and the bank will sell at the bid price.

Prices in the forex respond to traders buying behaviour as well as macroeconomic data. For example, say the US Federal Reserve raises interest rates, this is sure to make the US dollars more attractive causing it to rise up in all its pairs.