Amount of money to move the market

Has anyone done a study on the amount of money required to move the FX market a given number of pips ?

I assume the boys playing via the interbank market know this.

Naturally this will varying according to the time of day etc but it would be interesting to see the data if there is any.

If anyone can help or point me in the direction of such data I'd be very grateful.

I'm not sure you will get that kind of data, as there is no central exchange as such for forex.

Yes, I realise that there's no central exchange but I would have assumed that someone at some stage has collated all the possible avenues to the FX market and has a reasonable guide as to the amount that is required to move the current price.

Perhaps not but surely the interbank guys know just from experience.

If it helps, there is information about minimum trade size banks on interbank market are willing to accept when you achieve certain volume to be able to trade with them:

From Investopedia (The Foreign Exchange Interbank Market):

"The minimum transaction size of each unit that can be dealt on either platform tends to one million of the base currency. The average one-ticket transaction size tends to five million of the base currency. This is why individual investors can't access the interbank market - what would be an extremely large trading amount (remember this is unleveraged) is the bare minimum quote that banks are willing to give - and this is only for clients that trade between $10 million and $100 million and just need to clear up some loose change on their books."

Best Regards,

Martin

Just to add to this, there is also a network called Thomson Reuters Matching where banks can directly deal with each other through using live prices & quotes. The minimum ticket for this is 10 millions.

The difference between Thomson Reuters Dealing and Matching is the speed. The Dealing system is a conversational network replacing trade transactions over the phone. The Matching network is like an order book where the dealer can directly hit the bid or lift the offer and execute immediately.

There is also a huge turnover in FX swaps, that's a different thing other than FX spot transactions.

The $3 or $4 trillion daily turnover everyone hears of actually includes both spot and swaps among some other transaction variations.

So how much money required to move the market need some info on average turnover from inside the EBS and the Thomson Reuters networks, something we really don't have access to at the moment.


Regards,

Nader

It's almost like people here thrive on complexity...

The BOJ answered this question pretty explicitly on September 14, 2010.

Enjoy.

Because it's not an intraday move it took a lot more money per pip to move it then an short term push.

I would say this depends on what sessions are open at the moment. To make such pushes you need "calm market": no important news, strong support levels and so on!

you need a lot less money and effort to move the market by controlling news media, politicians etc.
Some words on TV when nobody expects and bang! there's your big move

just imagine a headline: "[insert name] minister said Spain needs $400 billion ASAP"
what happens next?

Interesting discussion, from a theoretical point of view that is. I'm glad you don't necessarily need to know exactly how much money is needed to move the market in order to become a profitable trader.

It's not your question, but a snarky answer to the question "why did the market go up" is "more buyers than sellers." Snarky, yes, but also not incorrect.

In an electronic matching market, such as the TR matching book mentioned above, or the electronic futures markets (e.g., GLOBEX) in, e.g., T-bonds and notes, there is a continuous flow of commitments from "liquidity providers." These are just entities, most banks in forex, but can be individuals as well via the various broker ECN's, which are proclaiming that they are willing to buy or sell the amount they post at the rate (price) they post.

Now say a bank commercial client, a multinational like ConAgra (grain) or Cat (machinery) orders their bank to buy them 200MM in Euros because of requirements they have in trade or funding of their European subsidiary. Their bank's forex desk decides to use an electronic matching provider. At the time they come to market, say the offer side of that book looks like (in fact, it would be in 0.1 ticks, but the idea's the same):

1.30100 20MM
1.30095 80MM
1.30090 50MM
1.30085 60MM

and the market is clear at 08.5 (last bid of .085 was filled; the highest bid is at 1.30080 at this instant). The instant the 200MM market order hits that computer, it begins to match the lowest offers until completely filled. So, here, 60 goes at 8.5, 50 goes at 9.0, 80 at 9.5 and 10 at 10.0. So the book, the instant after the order, looks like:

1.30100 10MM

So here, in this thin market, 200MM moved the offer up one-a half ticks. But for how long? Last we looked, there weren't any buyers north of 08.0. The market participants would see that, and one of two things (or both) would happen: either guys would have watched that jump, bet that it's a "real move", and jump on with new bids at this new level, moving the best offer higher still. Or, guys would see the gap in the book (depending on the terms of the electronic service, participants can see different amounts of the book - termed the "depth"), and place new offers to sell, going down from 10.0.

In that latter case, the market would return to its previous level in seconds.

So there's no way to correlate amounts to movements. It depends on the way the bids and offers are in book at an instant. If there had been 200 being offered at 08.5, the market would not have moved at all. Add to that the fact that the forex market has numerous ECN's, both for interbank only, such as TR, and others serving the clients of genuine "ECN" brokers such as Dukascopy. So they don't have to move strictly in lockstep. They're always very close, though, because the same bank may have contracts with three brokers' ECNs, and deal through one or more bank-only platforms. So their computers respond to changes in one by adjustments to their bids and offers in the others.

I hope this helps...

Nader,

I know that the daily swap turnover is something around 1.5x the daily spot volume. I "know" this because I read it on Wikipedia.

But what relationship exists between the swap "market" (if that's what it is) and the spot fx market? With that kind of size it would seem that the swap action would be very important. But where is information on that activity available - just to banks? Is there a tradable interplay between swaps & spot?

This is a topic that flies way over the radar in the retail fx world. Any insight, clues or links appreciated....

Richard Olsen from Oanda wrote a booklet about How to Trade and in it he says Spot Forex is 1.4 trillion a day, the average volume for EUR/USD is 3.4 million a second (1/2 in buying and other half in selling) and depending on time of day it takes 100-200 million to move EUR/USD 0.2% or by my calculations 26 pips at todays price or 3.8-7.6 million a pip.

The booklet is at his blog page at:http://www.olsenblog.com/2010/07/thi...-how-to-trade/

I asked ducascopy before, they said normally, 50 million can be traded immiediately.

no big players in FF?

Well, FX swaps are very common and are used for a variety of reasons mainly by banks among each others as well as with clients...

I am not aware of any broker/market maker offering FX swaps on the retail level...

To understand the FX swap transaction, it's simply doing a transaction today at a certain rate and then reversing it back at a certain date in the future at another rate...The basis for the difference in price is purely the interest rate differential....

Let's consider this little example...

EUR/[email protected] spot...

Bank A enters an FX swap with Bank B (spot - 1 week) at -10 swap points or pips...

Bank A sells 10 million Euros for 13 million dollars - rate of 1.3000 value spot with an agreement to re-buy the 10 million Euros again after 1 week at a rate of 1.2990 or for a total of 12.99 million dollars...

That's a typical FX swap transaction....

So what's so good about this transaction...??

It helps each bank to remove the imbalances in their currency inventories for 1 week....How??

Let's say that Bank A is a US bank keeping books in USD while Bank B is European bank keeping books in EUR....Recently one of the clients of Bank A requested to sell the 10 million Euros and Bank A quoted him a price and they did the transaction spot....So, now Bank A is long 10 million Euros...

Now Bank A is now left with 10 million Euros and is exposed to the currency rate risk immediately...Now Bank A have many options to offset or hedge this risk....Of course they can keep the 10 million Euros and taking the risk of future rates until they can sell those 10 million Euros to another client or in the interbank market for a profit....

If Bank A is being hit with lots of clients selling Euros and it keeps building up inventory of Euros, they might not be able to sell all of them immediately for a profit, especially if the Euro is moving in a downtrend...

So Bank A decides to postpone selling the Euros until further notice, thus entering the FX swap transaction, getting back the USD and eliminating the currency risk for some time, 1 week, 1 month, whatever and then reverse the transaction again later on....

Fact of the matter, Bank A can keep rolling over their 10 million Euro position using FX swaps infinitely until they make up their mind as to what to do with those 10 million Euros...


As to the relation between the swap market and the spot market, the swap points always start from the spot price...Thus the calculation of swap rates depend on the current spot price....It's the basis for the calculation...


Swap points are very sensitive to interest rate changes in any of the 2 currencies...That's why most of the FX swap volume is very short term since most of the participants do not want to expose themselves to interest rate changes by central banks....

Hope this helps a little bit..


Regards,

Nader

Thanks, Nader. What I gather from your explanation is that the swaps are a true interbank instrument that live quite removed from the spot market - except that swaps derive from spot their rate value at time of execution.

I don't imagine there is any way for a retail trader to gain any realtime information about swap transactions, and anyway I don't see how this informatiion might provide any kind of insight or edge in spot trades....unless I am missing something?

Well, as far as I know, that's correct...


Regards,

Nader

As already written, that's right. Swaps use the spot rate and the two currency's -IBOR's over the term, at a point in time to set the terms according to the standard interest/exchange rate parity arithmetic.

The market's purpose is not speculation: it's bank exposure management as explained above, or for corporation customers using them for convenience to lock the rates at which they fund their contractual payments, or protect their receivables, in other currencies.

Almost all swaps are originated by an ISDA (International Swap and Derivatives Association) member institution. You can look at isda dot org to find lots of information about the swap markets: sizes, concentrations, standard terms, the like. But not anywhere close to real time data. There are (or were last time I looked) around 200 ISDA members. That's just about any bank of any size in the world, investment banks, large brokers, insurance companies, major trading firms ("physicals" trading, that is: oil, grain, etc), and the finance wings of the multinational corporations.

There are a couple of things about the meaning of any "volume" numbers whenever there are swaps involved. One swap with 1 million notional may count for 6MM in volume when the BIS totals it up: The buyer and originator, and then the originator may offset with a counter swap to another bank for risk management, and that bank might do that again. And then, in some swaps, there is not even a real principal exchange! That's what the term "notional" means; it's just a basis on which to calculate the value of changes.

[BTW, "notional" is often the case in a retail forex trade: if one market maker's client buys, and another sells, and that MM decides to cross them internally, and not hedge each one off through some interbank conduit they use, then neither customer really bought or sold the amount they clicked; in fact, the only flow is the gain and loss on the amount they "notionally" traded; even that is just an internal accounting entry in the market maker's books.]

So when you read that BIS says there are 600 trillion in derivatives outstanding, or the forex roll is 3 trillion a day, a lot of that is double, triple, or quadruple counting - always times two, since both sides are counted. And then, some of it is even counting amounts that are not really transacted.

Not to say the markets aren't big, but they're not astronomical, either, in relation to the real wealth of the planet.

One quality insight following the other: thank you all for that!

Martin

Thanks, OldQ! My foggy assumption has been that swaps is how daytoday interbank transactional business-as-usual gets done, and that spot is a mostly speculative market. And I have I have read this in some of the broad & general descriptions of "foreign exchange" - that spot forex is "mostly" or sometimes "almost entirely" speculative. Begging the definition of "speculative"... but, is that a somewhat accurate distincion between spot and swaps, fwiw?