LARGE Trades?

Just out of curiosity... say I put a long order of $5,000,000 into a pair, say USD/JPY... would this significantly alter the price? If so, would someone doing such a thing be able to quickly profit by the sudden price increase and then immediatly sell? I'm really very curious about how FOREX works with huge trades, anywhere that I can find information on this?

I think you would need more like $500,000,000 to have an effect. Maybe even $5,000,000,000. Although I could be totally wrong, I have been before.

I'm really not sure either. I'd really like to know at what point one reaches a level whereby their order can alter the market price.

IT depends when you trade. IF it is after NFP minutes, you need much more than 500 000 000, if it is midnight and you are trading NZJPY for example, it is possible, but note that sometimes when broker will see that someone is selling 500 000 000 NZDJPY and it can trigger stop losses then broker will help you move the market

You can estimate by taking the widely reported 1.5 trillion dollar a day turnover and divided by the average pip range for a pair like eur/usd. Whatever it is ... why bother finding out? Individual traders cannot move the market alone unless you're as big as the bank.

Quoting nitman

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You can estimate by taking the widely reported 1.5 trillion dollar a day turnover and divided by the average pip range for a pair like eur/usd. Whatever it is ... why bother finding out? Individual traders cannot move the market alone unless you're as big as the bank.

Ignored

A good idea, but not even close to accurate. You would have to divide $1.5T by A) the number of pairs traded (most volume is in majors so you could just use those), B) the average 24 hour range of the pair, and C) somehow factor that a majority of the open interest exists at key support/resistance levels.


If price moved only in one direction and you averaged the open interest across the range, a pair like USD/JPY would have around $1.5-$2.0 million in interest per pip. At all but the most active times you can generate some significant price change with a $100mil line.



An individual trader can absolutely move the market. The real question is by how much...

It depends on when you trade and how thin the market is, in the pair you are trading.

US$5 Mil is to small amount to have any effect.

US$50 Mil can do it, though if the market is thin, the trader might have difficulty in placing the order through just one bank / broker.

I had a meeting at a FX trading operation in London, a few months back, this is what was discussed, according to the traders there, the above is correct.

You would need to place that large order directly thru an interbank because with a broker you're playing against the house and they would just offset your order. But on the other hand, broker would never allow you to place an order that large. However, there is no doubt your order would make a nice dent in the market...
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Bank for International Settlements published a report dated March 27 2006 showing forex trading on average totalled $2400 billion A DAY. Trading in UK and US alone accounting for half that volume. 3 Asian nations in the top 8 ie Japan, Singapore & HK account for another 17%. Making up the top 8 are Germany, Switzerland & France with a combined 11% share. And the rest of the world? 21%.

Elsewhere it's said that trading tops USD3 trillion some days - not hard to believe, I think.

This is an excerpt from a previous post of mine re-telling a story I read in Market Wizards. It fits this discussion I think. Also, this story is taking place 20 years ago.


In this interview, Bill Lipschutz recounts a trade he was in that was going wrong. He was short 3 BILLION US dollars, and some unexpected news went against him. He was down 30 million in 8 minutes. The market was to illiquid for him to get out with that size in the late afternoon in NY. He had to wait for Tokyo. He felt he could take the starch out of the market by selling a hundred million and kind of cap it. He sold 300 million more US dollars. And the market went right through it. He ended up getting out after being down 70-80 million at a much smaller loss. You must read the interview, but to sum up what he learnt, he felt the envelope was pushed to far and he needed risk control, and he had gotten himself in a position where the risk was unacceptable, and he had gotten himself in a position where there was no control. That this was the trade that would finally catch him with a bullet to the back of the head.

Wonder if Bill Lipschutz is able to stick to his trading rules at that level ?

What I've never understood is this. If on a daily basis $2 Trillion is traded in Forex and, let's just say the average lot size is 100,000, that's only 2 Million transactions per day. Not very much compared to Wall Street.

Can someone explain apparent contradiction?

By the way, how is it distributed, these 1,5-2,4 trillion dollars? What part of the market comes from brokers? they dont have more than 100 000 accounts combined, I am sure? If there are any broker who is not interested in you loosing money?

isn't your math wrong?

1000 million = billion
10000 million = 10 billion
100000 million = 100 billion
1000000 million = trillion

It should be 20 million transactions each.
But even that could be wrong. When I do one small transaction at Oanda, is that one real transaction? Or does Oanda gather all those small transactions and makes it one larger transaction in the "real" market?

I think they collect all of the small transation into some big trades , and deal with another bigger bank !

$5mil probably won't move the market during the asian trading hours.

Just a note...most brokers won't let you trade more than $20mil on a single trade. Some are even WAY less than that.

I know MBT let's you trade lots of up to $20mil. FX Solutions doesn't have a problem with lots of up to $10mil. Although you can trade more through their trade desk. FOREX.com only let's you trade $2.5mil through their platform before you have to call the trade desk. So you may want to make sure that you can actually trade that lot size.

During the most liquid times of the day, you won't have any problems getting fills in the $10mil+ range. However during the weak hours of the trading day, you will get partial fills at different price ranges depending on your order type.

Thanks all for the great information. I won't be making trades this large anytime soon but I expect to be doing some fairly large trading in the next few years. You have all certainly set me straight about the possibility of my trades changing the market :-) I don't see myself breaking the $10 - 20 million trade limit most brokers have in place.