What price do the market makers see? | Forex Factory

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What price do the market makers see?

  • #1
  • First Post: Edited Jan 19, 2013 8:06pm Jan 17, 2013 3:55pm | Edited Jan 19, 2013 8:06pm
(There is now a post further down which shows a diagram for more clarity on this topic)

I am wondering whether the market makers are following the bid price as most of us are. I have noticed with single pip accurately the bid price often hits fib levels and then reverses.

The significance to me is that if the market makers are following the BID price then it has more strength. I would therefore adjust for spread only when buying is relevant ie. entry when long, exits when shorting, since the BID price (and not the ASK) will more strongly adhere to levels of support and resistance. This would be more important for pairs with wider spreads and especially over shorter time frames where single pips can make a difference in the r:r.
  • #2
  • Jan 18, 2013 8:40pm Jan 18, 2013 8:40pm
This is certainly a misunderstood topic. I have noticed that most traders simply add or subtract the spread from all entry and exit positions for simplicity, whether going short or long.

To address the issue another way:

When going short and aiming for the 161.8 extension level we would need to subtract the spread from the TP since we are waiting for the ASK price to hit the TP. However, what is there to gain from subtracting the spread from the TP level when going long? Here we are waiting for the BID price to hit the TP at the 161.8 level.

As mentioned above, this is most relevant on shorter time frames, I have noticed on too many occasion that the BID price can hit the 161.8 level precisely.
  • #3
  • Jan 19, 2013 12:26am Jan 19, 2013 12:26am
What you need to ask is - "is this relevant to my trading and how can I use it, if at all".
  • #4
  • Jan 19, 2013 1:01am Jan 19, 2013 1:01am
Yes, I believe it is relevant, it keeps short and long trades consistent regards to precise fib levels. I state "precise" since I have been surpised how accurately the fib levels are hit by the bid price. Of course a long term test of real trades would confirm this better.
  • #5
  • Jan 19, 2013 1:08am Jan 19, 2013 1:08am
Quoting Aich
What you need to ask is - "is this relevant to my trading and how can I use it, if at all".
I find this to be quite relevant. I don't think a market maker would ignore the ask price, because they do both buying and selling. I would think when the spread is very high, they would be able to make some money. But I don't know for sure.
Play the players, not the cards.
  • #6
  • Jan 19, 2013 1:16am Jan 19, 2013 1:16am
and perhaps someone has tested such long term. I have only ever come across one person who practised such but I am not sure of their long term results.
  • #7
  • Edited 4:56am Jan 19, 2013 4:34am | Edited 4:56am
.

Come on guy... don't drown in a glass of water.

EVERY BODY in the world that deals in money exchange a) quote 2 prices and b) see 2 prices from whoever are linked to.
In case of Banks and Brokers, they usually see an array of different quotes, but all close to each other. ( we see only 2
and usually is the best available of what our Broker see. Now..if they give us the "best" one once we place an order is a different history.
right? )

Never lose sight that what we see in our charts is not some kind of official price or something like that.. they are "quotes".
Telling us, hey guy, I buy and sell euros... If you want to buy some, we sell it you at you 1.3320 (ask price), but if you have euros
and want to sell them, we can buy them from you at 1.3318 (bid). Thats it.

Brokers and Banks system are always looking 2 prices from liquidity providers, other Banks, ECN or whatever source they are link to.
NO ONE has inventory of euros, or dollar, yen etc... but they all see 2 prices "quoted", so each quote is a mix of their internal orders
and what they see everybody else quotes.

If we place an order to buy euros at their "ask" quoted , the brokers system looks at the "ask" of everybody else... if they can buy it
and mark it up a pip or 2, they accept our order. and that is the end of the history for our order, but this is done millions of times a day
making the price to fluctuate by supply and demand of each millisecond... if a lot of buy units come in at 1.3320 and not enough units
being sold at 1.3318 ... Brokers rise the bid price a bit to be able to buy then to fill the order, at least something is better then nothing.
But at the same time they would move the ask quote for those looking to buy the next second.

Nothing to do with fibos, MA , support, resistance etc.
Quotes will move according des-balance in units and the attempt to fill them.

J.

PS.. the way that helped me to get a better idea of the market is that I do not "Pay" spread... do we really?
I mean if the broker quote me 1.3320 ask price... I place an order and gets accepted... guess what? I payed 1.3320
did I pay anything else? no. ..NOW... if the broker in that specific moment will give me only 1.3318 for them if I wanted to sell them... that is a different history .. right? In a way I agree with Aich ... absolutely irrelevant to our trading... I guess the only relevance that is kind of dumb
to scalp for a few pips knowing that no one will give you the same price you pay for right away.
  • #8
  • Jan 19, 2013 4:39am Jan 19, 2013 4:39am
My post was about how YOU can use this in your trading.
Of course it is relevant that price works off fib lines. This says that you are placing your fibs correctly.
Well done. Take this into your trading. Look closely at which fib lines are regularly being responded to and possibly remove those that are not being respected. Look closely at which time frame(s) are being respected. Are they the larger time frames?
Do these fib lines match any other S/R lines?
My point is "how can YOU use this information".
You can either use these forums as an academic exercise (ie., to say how interesting something is) or you can use them to work out how to become a better trader and ultimately make some money from your efforts.
It is important to keep questioning things but then working out how to use them.
Keep going.
  • #9
  • Jan 19, 2013 5:09am Jan 19, 2013 5:09am
Quoting Aich
My post was about how YOU can use this in your trading.
Of course it is relevant that price works off fib lines. This says that you are placing your fibs correctly.
Well done. Take this into your trading. Look closely at which fib lines are regularly being responded to and possibly remove those that are not being respected. Look closely at which time frame(s) are being respected. Are they the larger time frames?
Do these fib lines match any other S/R lines?
My point is "how can YOU use this information".
You can either use these forums as an...

Hi Aich..
Unluckely Quotes (prices ) do not response to anything. There is no "correct" way to set fibos or MAs. Really.
We can use a lot of information, but at the end, whatever line, or point in the chart is just that. Price will break it
or not brake it when it gets there.

J
.
  • #10
  • Jan 19, 2013 5:31am Jan 19, 2013 5:31am
Quote
I am wondering whether the market makers are following the bid price as most of us are
I don't quite understand the question here.
Market makers set the bid price and they set the ask price. As far as they are concerned, they are trying to balance sellers and buyers in such a way that they will always profit.
Please Do Not PM Me With Coding Enquiries
  • #11
  • Edited 7:42pm Jan 19, 2013 7:25pm | Edited 7:42pm
Quoting jeuro
.

Come on guy... don't drown in a glass of water.

EVERY BODY in the world that deals in money exchange a) quote 2 prices and b) see 2 prices from whoever are linked to.
In case of Banks and Brokers, they usually see an array of different quotes, but all close to each other. ( we see only 2
and usually is the best available of what our Broker see. Now..if they give us the "best" one once we place an order is a different history.
right? )

Never lose sight that what we see in our charts is not some kind of official price or something...
Jeuro,

this is missing my point. The fibo levels are relative to my candles and no matter what the rest of the market is doing, my candles still line up with the fibo levels that I draw over them. Now when I draw a fibo extension over a strong H1 candle I often see that it retraces back to 78.6 or 61.8 and then extends out to 161.8 and often very precisely, within a pip. So, when buying a currency pair, if the BID price is going to adhere to the fibo levels accurately why would I need to knock of the spread? The spread is not relevant when my bid price hits TP that I have set to 161.8 fib extension for exmaple. For the same buy trade I would want to place my SL behind a fibo level, 50 for example. Now I will simply place the SL behind a number of pips for safety but this has nothing to do with the spread since the it is the BID price that is relevant.

On candles of 15 to 60 minutes and therefore only around 20 pips often, this precise setting of TP and SL (only using the spread where necessary ie. when the ASK is to be hit) can make a big difference. The reward to risk can be 50% bigger especially on pairs where the spread is 3-5 pips.

Over the long term how much difference does this all make, I don't know, but we have to have a system that makes sense to us and keep asking questions as Aich stated.

Why use the spread unless we are waiting for the ASK price to hit a level?
  • #12
  • Jan 19, 2013 7:39pm Jan 19, 2013 7:39pm
Quoting Gumrai
I don't quite understand the question here.
Market makers set the bid price and they set the ask price. As far as they are concerned, they are trying to balance sellers and buyers in such a way that they will always profit.
I was actually wondering if the market makers were watching the BID price as most of us do. This would give more strength to the BID price at fib levels and other levels for support and resistance. Therefore it would be more important to adjust for the spread when the ASK price is to hit TP or SL or entry on a pending order.
  • #13
  • Jan 19, 2013 7:54pm Jan 19, 2013 7:54pm
Quoting richhand
I was actually wondering if the market makers were watching the BID price as most of us do. This would give more strength to the BID price at fib levels and other levels for support and resistance. Therefore it would be more important to adjust for the spread when the ASK price is to hit TP or SL or entry on a pending order.
You're not making any sense. Market makers SET the bid price as well as the ask price. Why would they be watching something that they set?

If you set levels on your bid price chart and you want to enter or exit when price hits that level, then you will add the spread when entering longs or exiting shorts. Otherwise, just use the price on the chart for exiting longs or entering shorts.
If your charts show mid price, then you would add half the spread when entering longs or exiting shorts and vice versa.
Please Do Not PM Me With Coding Enquiries
  • #14
  • Jan 19, 2013 8:02pm Jan 19, 2013 8:02pm
To explain more clearly, the diagram shows a long position where the BID price hit the 61.8 retracement perfectly. If the trade had been entered on a pending order at this 61.8 level the ASK price would have needed to be adjusted for the spread ie. the spread added on top of the 61.8 level.

At the other end of the trade, if the TP had been placed at 161.8 the next candle would have hit it. Here the trade will close when the BID price hits the 161.8 level. There is no need to adjust for spread since the ASK has nothing to do with TP of a long trade.

The opposite applys for going short.

The diagram is over a 60 minute chart and shows how powerful the fibo levels can be in relation to the BID price.
Attached Image
  • #15
  • Jan 19, 2013 8:09pm Jan 19, 2013 8:09pm
Quoting Gumrai
You're not making any sense. Market makers SET the bid price as well as the ask price. Why would they be watching something that they set?

If you set levels on your bid price chart and you want to enter or exit when price hits that level, then you will add the spread when entering longs or exiting shorts. Otherwise, just use the price on the chart for exiting longs or entering shorts.
If your charts show mid price, then you would add half the spread when entering longs or exiting shorts and vice versa.
The market makers may still be watching the BID price on their charts.

Your next paragraph is pretty spot on to what I was stating
  • #16
  • Jan 19, 2013 8:18pm Jan 19, 2013 8:18pm
BTW by stating Market Makers I was not just reffering to brokers but any organisation that has the ability to "move" the maket.
  • #17
  • Jan 19, 2013 11:40pm Jan 19, 2013 11:40pm
I'll try to explain this a bit more clearly.

Look at the chart on EJ assuming a 2 pip spread
The trading range between the recent high and recent low is exactly the same whether your chart has Bid, Mid, or Asking price.
Each candle is exactly the same length in pips.
There is no difference whatever price is used, the chart will look exactly the same. Just a chart using the ask would be stepped up 2 pips from a chart with the bid.
Whatever chart you are using will decide whether you have to add or subtract the spread when entering and exiting positions.
Attached Image (click to enlarge)
Click to Enlarge Name: ej.gif Size: 19 KB
Please Do Not PM Me With Coding Enquiries
  • #18
  • Jan 22, 2013 6:39pm Jan 22, 2013 6:39pm
Just to end the thread which got a little messy,

The hypothesis was: if most of the market is watching the same bid price then the bid price has more strength over the ask when support/resistance levels are hit. And therefore we only need to adjust the spread when entering long and exiting short positions.

I have now had feedback from certain sources that have convinced me that the above is how best to look at the MT4 charts. Therefore there is no need to adjust spread at all entry/exits on all long and short positions as discribed by many on the forums.
  • #19
  • Last Post: Jan 23, 2013 12:59am Jan 23, 2013 12:59am
Quoting richhand
Just to end the thread which got a little messy,

The hypothesis was: if most of the market is watching the same bid price then the bid price has more strength over the ask when support/resistance levels are hit. And therefore we only need to adjust the spread when entering long and exiting short positions.

I have now had feedback from certain sources that have convinced me that the above is how best to look at the MT4 charts. Therefore there is no need to adjust spread at all entry/exits on all long and short positions as discribed by many...

Hi Richard.
Regarding your previous post of organizations that has the ability to "move" the market ... there is none that exist other
the Central Banks such as BoJ or the Swiss Central Bank. These, at certain levels sell huge amount of their currencies
"attempting" devaluation of their currency. I say attempt because they could also fail to do it if the whole world
buys it right away. No one has infinite money, not even Central Banks could sustain a sell out, nor anyone can sustain a buy out
of any currency. Actually, devaluations nowdays are done via PR more big sell outs, meaning the Central Banks "announce" big and loud
they will intervene... with just that they cause the quotes moving in their desire direction, and if they still need to sell,
it would be a lot less as if they did not announce it.

My last toughs would that it is impossible to make any conclusion from observing bid and ask strength at any point or price
levels in the charts. The forex market is almost 100% efficient and any strength found is reflected immediately (milliseconds)
on the quoted prices. That is why we have very little fluctuation of the spreads at all times.

J.
.
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