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Few tricky questions

  • #1
  • First Post: Jan 25, 2012 9:34am Jan 25, 2012 9:34am
Hi,

1. Who knows how fx quotes originate. How market maker set them. Anyone?

2. I know how say retail broker is going to hedge his net position, but how end market maker gonna do this? Can market maker offset his net position by going to another market maker, or they do something else?
  • #2
  • Jan 26, 2012 2:06am Jan 26, 2012 2:06am
Well there is a Futures market, and there is an OTC Derivatives market (FOREX). There are many different liquidity pools and each of them has slightly different prices, but at the same time they are all linked as many of the same banks are in a lot of different liquidity pools, hence if prices get out of line they would arbitrage. So it's some sort of complex web of OTC deals with banks as counter parties and i guess they hedge part of the exposure with futures. But essentially you are trading Derivatives as far as i understand.
  • #3
  • Jan 26, 2012 2:57am Jan 26, 2012 2:57am
Quoting dns_di
Hi,

1. Who knows how fx quotes originate. How market maker set them. Anyone?

2. I know how say retail broker is going to hedge his net position, but how end market maker gonna do this? Can market maker offset his net position by going to another market maker, or they do something else?
Good qustions, not many care about this type of info but it is extremely important to have a thoruogh understanding of the market you are trading. These are quite broad questions though and would take pages and pages of explaining.

Here is a good link to get you started - http://www.forexfactory.com/showthread.php?t=7484

Market micro-structure is what you are trying to uncover. Google and use other forms of research to find the answers. Read it all. Google search of forex micro-structure will bring up very academic papers that will be very hard to understand at first. The first couple of chapters of this paper is a bit easier and gives a pretty good summary - http://www.ecb.int/pub/pdf/scpwps/ecbwp629.pdf

After you have read a bit more then come back with some more specific questions if you like and people will be able to tackle them for you.

Good luck, you are opening a can of worms that many people never bother with but it will be worth it.
  • #4
  • Jan 26, 2012 3:32am Jan 26, 2012 3:32am
My two cents input

Market is an auction driven by peoples. What drive peoples, greed and fear

High: The highest price that buyer had paid for a given period
Low: The lowest price that seller as agreed to sell for a given period
Close: The last sell for a given period

In summary price paid is the perceived value from either a seller and a buyer. Each one having a different opinion on the market.

With that said, price are not directly manipulated. Big guy won't be able to control for an extended period a market like EurUsd. To do so, they use the fear and greed of the masses to move on their entry and stop loss. Ex: They know where the crowd will want to enter to profit from a brake-out so they position themselves on the other side. When you buy, they sell.

Again, price is the perceived value over a transaction by both buyer and seller. Nothing more
  • #5
  • Jan 26, 2012 3:37am Jan 26, 2012 3:37am
Quoting arjfca
With that said, price are not directly manipulated.
Are you kidding. All highly traded markets are manipulated. Forex is no exception. It doesn't have to be for extended periods to be blatent manipulation. The biggest example that I can think of is fed intervention. They call it intervention, I call it manipulation. But the fed are not the only ones who manipulate forex, it happens at all levels.
  • #6
  • Jan 26, 2012 4:49am Jan 26, 2012 4:49am
Quoting Agro
Are you kidding. All highly traded markets are manipulated. Forex is no exception. It doesn't have to be for extended periods to be blatent manipulation. The biggest example that I can think of is fed intervention. They call it intervention, I call it manipulation. But the fed are not the only ones who manipulate forex, it happens at all levels.
Have you read what I said.
Quote
Big guy won't be able to control for an extended period a market like EurUsd

Your assessment is true for a bucket shop. They took they other side and could manipulate your price by delaying or re quote. Your job is to go away from these crooks.

Again, to me Fear and Greed drive the market. Their manipulation is to know very well how the crowd react the these effect Ex: They can create a quick spike by buying at price above a stalling area. traders get in because price did brake above their target. Who is selling to them ( A buyer buy from a seller).

If the new buyer is not followed by other participants, price will stall. If their is more seller than buyer, price will drop. New buyer will see their nice new entry going again them, they may panic and close by selling back their position. Who buy back, the big guy. Whoops, soon the price go back in the original direction. Big guy as succeed to manipulate the market using greed and Fear. They create quick spike and we react to it. So yes they control our fear and greed. But not by manipulating the price ( does not apply to bucket shop, because they do manipulate)

Martin
  • #7
  • Jan 26, 2012 5:05am Jan 26, 2012 5:05am
Quoting Agro

The biggest example that I can think of is fed intervention. They call it intervention, I call it manipulation. But the fed are not the only ones who manipulate forex, it happens at all levels.
Fed, SNB, MoF (BoJ), ECB......they're all at it

BOJ is my favorite, mind you their jawboning (line in the sand blah blah blah) doesn't seem to have the same effect nowadays!
  • #8
  • Edited 5:21am Jan 26, 2012 5:08am | Edited 5:21am
Quoting arjfca

They can create a quick spike

So yes they control our fear and greed. But not by manipulating the price
What do you call "create a quick spike" other than 'manipulation'?

I think we're talking at cross purposes here, your definition of manipulation is a bršker changing the streaming quotes they feed to clients, the broader definition is manipulation of the underlying market itself.
  • #9
  • Jan 26, 2012 5:20am Jan 26, 2012 5:20am
Quoting arjfca
Have you read what I said.


Your assessment is true for a bucket shop. They took they other side and could manipulate your price by delaying or re quote. Your job is to go away from these crooks.

Again, to me Fear and Greed drive the market. Their manipulation is to know very well how the crowd react the these effect Ex: They can create a quick spike by buying at price above a stalling area. traders get in because price did brake above their target. Who is selling to them ( A buyer buy from a seller).

If the new buyer is not followed...
Seems pipmutt has pretty much responded for me, cheers pipmutt

Yes I read your post and I stand by my response.

Edit - Sorry I am busy and don't have time for lengthy responses but you are incorrect. Yes it is hard to manipulate the market on any long term basis but with deep pockets and influence and credibility (whether desereved or not) it is possible and is done. The forex industry would like us all to believe the contrary so as we feel safe, but it is all propoganda.
  • #10
  • Jan 26, 2012 5:24am Jan 26, 2012 5:24am
Quoting Agro

cheers pipmutt
You're welcome!

....didn't mean to jump in the middle of your debate, you had it under control, lol!
  • #11
  • Jan 26, 2012 6:21am Jan 26, 2012 6:21am
Hey, no problem buddy. This is a public forum. One person saying something holds almost zero weight. Two people saying it holds almost zero weight x 2
  • #12
  • Last Post: Jan 26, 2012 6:37am Jan 26, 2012 6:37am
Quoting Agro
Hey, no problem buddy. This is a public forum. One person saying something holds almost zero weight. Two people saying it holds almost zero weight x 2
Agree
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