Forex Market Liquidity | Forex Factory

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Forex Market Liquidity

  • #1
  • First Post: Oct 24, 2012 10:51pm Oct 24, 2012 10:51pm
Hello guys i'm new to this forum as you can probably tell from looking at the upper right corner, but I have a few months of trading experience. Until this point I have never really given much thought to how the retail forex market operates. I figure this forum would be a good place to start learning, since there are so many experienced traders here. So I have two questions:

1. Is it true that when I buy/sell a currency pair on a retail broker no buying/selling transactions actually take place and that all i'm doing is essentially betting on a derivative (i.e. : long/short)?

2. Would several hundred retail traders all chasing the same entry and exit prices impact the market enough that it would severely compromise a trading system/methodology?

The reason why I'm asking the 2nd question is because of a post a relatively respected member on this forum made. Here's the link: http://www.forexfactory.com/showthre...32#post5916732

I appreciate all helpful posts, thanks guys .
  • #2
  • Oct 24, 2012 11:39pm Oct 24, 2012 11:39pm
Quoting lcy723
Hello guys i'm new to this forum as you can probably tell from looking at the upper right corner, but I have a few months of trading experience. Until this point I have never really given much thought to how the retail forex market operates. I figure this forum would be a good place to start learning, since there are so many experienced traders here. So I have two questions:

1. Is it true that when I buy/sell a currency pair on a retail broker no buying/selling transactions actually take place and that all i'm doing is essentially betting on a...
The post you refer to is 100% correct.
The liquidity available for trading in the forex is extremely small.
  • #3
  • Oct 26, 2012 4:47am Oct 26, 2012 4:47am
Quoting lcy723

1. Is it true that when I buy/sell a currency pair on a retail broker no buying/selling transactions actually take place and that all i'm doing is essentially betting on a derivative (i.e. : long/short)?

2. Would several hundred retail traders all chasing the same entry and exit prices impact the market enough that it would severely compromise a trading system/methodology?
1. It seems that yes but I think that brokers can perform some buy/sell transactions several times per day to protect themselves from the risks when the total amount of long or short positions is too big.

2. Yes, I'm pretty sure that several hundred traders which are trading with the same broker can impact the quots of this broker but the difference will not be too big
  • #4
  • Oct 26, 2012 4:02pm Oct 26, 2012 4:02pm
I tough that the forex market was the biggest market in the world. You guys are saying that I will have more liquidity trading corn?

It goes against of what I have read and study ( and I don't mean brokers (dis)information). Even the well praised/reputed babypips school is not in compliance.
http://www.babypips.com/school/forex-vs-futures.html


I don't understand the numbers of the link given by Darkstar, in the futures it doesn't talk about corn it talks about agriculture which includes vary kinds of futures corn, rice, etc...

Can you guys can explain a little bit better why do you think that forex have a low liquidity, please?
  • #5
  • Oct 26, 2012 5:06pm Oct 26, 2012 5:06pm
Here's the truth:

1. No, there is actual buying/selling going on, but the buying and selling being done is a arbitrage.

It's very important you realize that the retail FX broker provides you a quote at mark-up of the actual price feed. ie. when you "market buy" at the price quoted to you by the broker, that price already accounts for their profit. the broker's themselves have a trading feed to off-set trades; it could be a bank feed with multiple banks posting bid/asks; or a futures feed.

For example; the market for euro is a tick wide or less; (bid/ask) 1.2800/1.2801

The broker quotes you 1.2799/1.2802. When you buy @ 1.2802, the broker buys at 1.2801 from the real feed and sells you 1.2802, securing 1 tick from execution. (the opposite is also true)


2. What I find most traders fail to realize is that there is not an infinite number of quantity available at a price. If there's only 5 lots available @ X and 100 people want to buy/sell a 1 lot at that price, only the first 5 people will get it before the price starts going up/going down. So yea, systems that are "public" knowledge or a lot of people use become useless overtime, unless of course you have real edge.




Quoting lcy723
Hello guys i'm new to this forum as you can probably tell from looking at the upper right corner, but I have a few months of trading experience. Until this point I have never really given much thought to how the retail forex market operates. I figure this forum would be a good place to start learning, since there are so many experienced traders here. So I have two questions:

1. Is it true that when I buy/sell a currency pair on a retail broker no buying/selling transactions actually take place and that all i'm doing is essentially betting on...
  • #6
  • Oct 27, 2012 12:56am Oct 27, 2012 12:56am
Quoting Demos4x
I tough that the forex market was the biggest market in the world. You guys are saying that I will have more liquidity trading corn?

It goes against of what I have read and study ( and I don't mean brokers (dis)information). Even the well praised/reputed babypips school is not in compliance.
http://www.babypips.com/school/forex-vs-futures.html


I don't understand the numbers of the link given by Darkstar, in the futures it doesn't talk about corn it talks about agriculture which includes vary kinds of futures corn, rice, etc......
Yes, "more liquidity in corn futures than forex" is a good way to put it.
Here is the thing.
The trillions traded are from commercial deals world wide and are closed deals that do not add any liquidity.
If you were to open an account with your friendly-neighborood-forex-bucket-shop and place a trade for 1 billion face value knowing that with a liquidity of 4 trillion it should be just a drop in the ocean ... well you can't.
Also, if you have access to Level 2 data, you will see that on a busy day in the euro 3 million is HUGE.
  • #7
  • Oct 27, 2012 2:17am Oct 27, 2012 2:17am
eu futures volume is 300K or so per day. That is not little.

phsical must be in line with thaqt number. So whtever trades this volume, is probably similar liquidity.

Corn, yea right.
  • #8
  • Oct 27, 2012 3:47am Oct 27, 2012 3:47am
Spot liquidity = futures liquidity ?

300K contract = 37 billion face value
spot is supposed to be 1.5 trillion
Something does not add up...
  • #9
  • Oct 27, 2012 3:59am Oct 27, 2012 3:59am
spot is overrated. Remeber seeing liquidity at dukascopy BEFORE they turned on their fancy stuff with quotes playing in front of me on monday morning.

there were 3 orders in range od 10 pips in eujy. Probably what is really going on. No way one would trade this with 10 pips stop.

These large compressed bid/offers magically disappear when you about to buy to be winner.

Other one was years ago when playing gbpchf. Had 3 contracts and 140 pips stop. They took me out and continued trend. Suspect i was the only player at the time :-(

however, I still belive futures volume is good inciator of true depth. I would not trade 100 contracts with 10 pips stop. That is not my size yet anyway. 100 pips stop probably ok.
  • #10
  • Oct 27, 2012 4:36am Oct 27, 2012 4:36am
i am tokative today... must be good wine. i aways like celebrating new account high, especially after longer walley - this time 3 months.

if futures were so insignificant, phsical would not respect gaps created in futures. See the chart and decide for yourself. Now, I will really shut up.
Attached Image (click to enlarge)
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  • #11
  • Oct 27, 2012 1:27pm Oct 27, 2012 1:27pm
Quoting macroman
i am tokative today... must be good wine. i aways like celebrating new account high, especially after longer walley - this time 3 months.

if futures were so insignificant, phsical would not respect gaps created in futures. See the chart and decide for yourself. Now, I will really shut up.
Yeah, can figure out that you're having fun - seeing how the walley is going..
And feel free to update, no prbs. And as regards spot liquidity..ask two traders about this and they will give you two different answers.
  • #12
  • Oct 28, 2012 8:13am Oct 28, 2012 8:13am
Quoting Forexnuts
Yeah, can figure out that you're having fun - seeing how the walley is going..
And feel free to update, no prbs. And as regards spot liquidity..ask two traders about this and they will give you two different answers.
Guess i should have seen that coming. There is no centralized exchange for the spot market after all. Thanks for replying to this thread anyways guys.
  • #13
  • Oct 28, 2012 7:17pm Oct 28, 2012 7:17pm
Quoting lcy723
Guess i should have seen that coming. There is no centralized exchange for the spot market after all. Thanks for replying to this thread anyways guys.
Yeah, 'no centralized market exists on the spot and that is why the market will stay open during Sandy's drag on Big Apple..
  • #14
  • Feb 27, 2014 9:30am Feb 27, 2014 9:30am
Quoting metroman
{quote}
1. It seems that yes but I think that brokers can perform some buy/sell transactions several times per day to protect themselves from the risks when the total amount of long or short positions is too big.

2. Yes, I'm pretty sure that several hundred traders which are trading with the same broker can impact the quots of this broker but the difference will not be too big

1. Could someone explain this?I Thought that ecn brokers send me in the real forex market where liquidity providers (banks who are making the market giving bid-ask price and liquidity above and below price) match my order with their orders and other clients that sending orders to them while collecting the spread, it isnt? Those hundreds of avaiable lots displayed in the market depth window above and below current price aren't real volume? I calculated that it takes millions to move eurusd for 1 pip, so it's all fake?

2. Aren't retail traders just a tiny bit of the forex market, like 5-10% and not more? It isn't enough liquidity to fill big orders, I thought that big banks trade against eachothers and not much interested about retail stop as many think (of course they take stops but not only from retail)
  • #15
  • Feb 27, 2014 7:00pm Feb 27, 2014 7:00pm
Quoting Ainur
{quote} 1. Could someone explain this?I Thought that ecn brokers send me in the real forex market where liquidity providers (banks who are making the market giving bid-ask price and liquidity above and below price) match my order with their orders and other clients that sending orders to them while collecting the spread, it isnt? Those hundreds of avaiable lots displayed in the market depth window above and below current price aren't real volume? I calculated that it takes millions to move eurusd for 1 pip, so it's all fake? 2. Aren't retail traders...
Many are clueless here. You must search from as many source as you can. Yes retail volume are still very very small. Read here http://www.bis.org/publ/qtrpdf/r_qt1312e.htm
  • #16
  • Feb 27, 2014 11:30pm Feb 27, 2014 11:30pm
Quoting lcy723
Hello guys i'm new to this forum as you can probably tell from looking at the upper right corner, but I have a few months of trading experience. Until this point I have never really given much thought to how the retail forex market operates. I figure this forum would be a good place to start learning, since there are so many experienced traders here. So I have two questions: 1. Is it true that when I buy/sell a currency pair on a retail broker no buying/selling transactions actually take place and that all i'm doing is essentially betting on a derivative...
Just to add for those who do relationship based trading their liquidity are much greater than what you would have on ecns as liquidity price widen spreads/provide less liquidity there. Here read this http://www.tradertools.com/news/edit...esQ4-12Report/.
  • #17
  • Dec 2, 2018 11:47pm Dec 2, 2018 11:47pm
Trading with DMA/STP broker gives us direct access to the prices of leading forex banks and non-bank LPs receiving the best possible price in the market at a specified time. All orders get passed on directly to liquidity providers and once an order hits the liquidity pool it is being executed immediately. Every Bank and Non-Bank Liquidity Provider is streaming its pricing on its own discretion. Therefore, the more LPs the better. If the broker is connected to 20+ LPs (Tier1 Banks, Non-Bank LPs and MTFs), we get the best price available for our trades and all orders are executed on "Fill or Fill" principle.
  • #18
  • Last Post: Dec 5, 2018 2:12pm Dec 5, 2018 2:12pm
Just make sure you have an ECN broker and youll be fine.
unless you want to trade more than 100 lots on a position? which i highly doubt you will ever. Especially given that you probably think macds and rsi are great tools of tech analysis. lol.
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