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Money needed to move 1 pip

  • #1
  • First Post: Jul 5, 2008 7:59pm Jul 5, 2008 7:59pm
In any economic model, buying or selling has a direct impact in the price.
I've read about scalping and high volumes in few seconds.
My question is: how would a high volume transaction impact the price, or how much is it needed to move the price 1 pip in, say EUR/USD?

I'm watching the tick movement, and suddenly 3 pips up and down in half a second. Was this a huge transaction by some bank? Was a company sold?
I'll never move 10 lots, but if I did, would that have a direct impact or is it just a drop in the sea?
I hear the answer: Just a drop in the sea.
Now: 100 lots? 100000 lots?
Jus trying to understand about liquidity and volumes.
  • #2
  • Jul 6, 2008 12:30am Jul 6, 2008 12:30am
Quoting Batoobah
In any economic model, buying or selling has a direct impact in the price.
I've read about scalping and high volumes in few seconds.
My question is: how would a high volume transaction impact the price, or how much is it needed to move the price 1 pip in, say EUR/USD?

I'm watching the tick movement, and suddenly 3 pips up and down in half a second. Was this a huge transaction by some bank? Was a company sold?
I'll never move 10 lots, but if I did, would that have a direct impact or is it just a drop in the sea?
I hear the answer: Just a drop in the sea.
Now: 100 lots? 100000 lots?
Jus trying to understand about liquidity and volumes.
I have a buddy who wants to Sell his '69 Cuda' and only wants $25G for it.
Is that a bargain?

Price moves when a Deal Is Struck.

1 Lot or 100. The Market has Spoken.
  • #3
  • Jul 6, 2008 12:34am Jul 6, 2008 12:34am
Yes it is.
He just have to find the person who knows it.

The market moves with every transaction, even a $1 one. That I knew.
  • #4
  • Jul 8, 2008 2:40am Jul 8, 2008 2:40am
Hey good question man, I wonder if anyone really knows...other than the banks I suppose
  • #5
  • Dec 1, 2008 1:22pm Dec 1, 2008 1:22pm
Read that book, the interview with Bill Lipschutz.
Bemac doesn't know. However, it's not hard to do the math if you know certain numbers. Read The New Market Wizards, in that interview Lipschutz talks about moving the market about a 5% with a single transaction.
Yes, yes, yes, forex is liquid, yes, yes, yes, one trillion something...
That's just numbers to say "I don't really know how liquid it is".
But experienced traders know. Any guy in the Big Boys club knows, and they see it done every single day.
  • #6
  • Dec 1, 2008 2:27pm Dec 1, 2008 2:27pm
Every day is different and the volume it takes to move the market depends on the current liquidity. Also, if there are no buyers at a price, price will move to the next level, and this is where you see those jumps. Got to be a buyer and seller for a transaction to take place. Eur/Usd tends to be the most liquid so it is harder to push around, or takes larger orders to move.
  • #7
  • Edited 6:23pm Dec 1, 2008 6:11pm | Edited 6:23pm
When deals are being done price is not moving, it is only when there is an imbalance in the market that the price mechanism moves to an equilibrium which matches buyers and sellers. So if there are $2bn buyers of EUR, and only $1bn of sellers at that price, $1bn of buyers in the market will still remain once all deals at that price are done, ceteris paribus, and price will seek out the level where more sellers are prepared to come into the market, assuming those buyers still wish to purchase at the higher price. That is how it works in supply and demand terms in a perfect market anyway. So there is no definitive value of how much it takes to move 1 pip, but theoretically it is just $1 more than the total amount of buyers or sellers at that price.

Check this video on how spreads are directly effected by your orders on an ECN. You'll have to ignore all the spam and tags etc., but it does represent what should be going on with a broker that is actually putting your orders into the system.

Inserted Video
  • #8
  • Dec 2, 2008 11:11am Dec 2, 2008 11:11am
Quoting rookiesfx
I've never stumbled upon any other threads discussing this. Good info though irrelevant to trading.http://www.fxgator.info/img1.jpghttp://www.fxgator.info/img2.jpghttp://www.fxgator.info/img4.jpg
http://www.fxgator.info/img9.jpghttp://www.fxgator.info/img10.jpg

Right, so what moves prices is irrelevant to trading is it?

Seems like leaving inane comments at the end of each thread with a massive gap underneath is irrelevant to trading. What's the deal rookie?
  • #9
  • Dec 2, 2008 8:20pm Dec 2, 2008 8:20pm
Quoting HipsterPipster
Every day is different and the volume it takes to move the market depends on the current liquidity. Also, if there are no buyers at a price, price will move to the next level, and this is where you see those jumps. Got to be a buyer and seller for a transaction to take place. Eur/Usd tends to be the most liquid so it is harder to push around, or takes larger orders to move.
In that case can we said with more liquidity more movement and more rising in the currency? Or the volume as a technical tool is irrelevant in forex trading.
Anyways I’m just trying to know what exactly volume means.
  • #10
  • Dec 2, 2008 9:43pm Dec 2, 2008 9:43pm
I guess everything is about people having money to buy, so people can sell. Lack of liquidity has made some particular trends stuck because no investors involved. He probably means the volume that it takes to move the market, now it's probably more because of the lack of liquidity.
  • #11
  • Jul 16, 2015 6:58pm Jul 16, 2015 6:58pm
Seems like an inconclusive thread. So ill take a crack at it. Some basic economics understanding required.

Assume Country A and B make up the planet
Assume both have 100$ in circulation
Assume both economies are exactly alike
-exchange rate will be 1

Now assume A increases money supply by 10 from 100 to 110
Assume B keeps money in circulation the same at 100
-exchange rate B/A will be equal to 1.1

The above is a 10 percent increase or put another way it is 10000 pip (Percent in point) increase
Now that we are clear about pips lets talk forex

Assume i have a currency that numerate people want to buy.
the price will depend on their negotiations with each other relative to the initial price i have set (could be 0 could be something else)
If i were to graph their negotiation in a time frame of a minute, i would end up with a M1 candle.
So the candle is a reflection of orders. These orders are what the market is negotiating for the currency within a particular span of time. The price is determined by a number of variable factors with the mechanism i have outlined in the beginning of this post.

now that we are clear about how price is determined lets talk pip movements.

Assume 10 people in the world
assume eur/usd as the only pair
assume 5 people own USD and 5 own EUR
Assume there are 100 units of EUR and 150 units of USD in circulation equally distributed priced at par (20 units each for EUR and 30 units each for USD)
Assume economies are equal
-EUR/USD rate will be 1.5000

Assume a person holding 30 USD wants to buy 10 EUR and places an offer at 16 USD for the 10 EUR because the EUR guy doesn't want to sell at 15. Assume seller accepts
Now the price expectation of 100 units of EUR goes to 160 USD
-The rate of EUR/USD will be 1.6000 or a 1000 pip move

If volume of monies was greater than 100 and 150, the pip move would be lesser
if volume of monies was lesser, the pip move would be greater

Good day!

p.s. Fiat money is total BS
  • #12
  • Edited 8:19pm Jul 16, 2015 7:25pm | Edited 8:19pm
Quoting Batoobah
My question is: how would a high volume transaction impact the price, or how much is it needed to move the price 1 pip in, say EUR/USD?
Most ticks have no real meaning. The answer to your question is - zero. Yep, zero volume needs to happen for your charts to show a 1 pip change. In the decentralized market of foreign exchange, our charts only showing a moving bid and this can move at the leisure of where ever your data feed comes from and for whatever their immediate bid/offer wants to be. For all we know, it could move 10 pips or more on zero volume and we wouldn't be any the wiser.
  • #13
  • Jul 17, 2015 5:18am Jul 17, 2015 5:18am
Quoting Batoobah
In any economic model, buying or selling has a direct impact in the price. I've read about scalping and high volumes in few seconds. My question is: how would a high volume transaction impact the price, or how much is it needed to move the price 1 pip in, say EUR/USD? I'm watching the tick movement, and suddenly 3 pips up and down in half a second. Was this a huge transaction by some bank? Was a company sold? I'll never move 10 lots, but if I did, would that have a direct impact or is it just a drop in the sea? I hear the answer: Just a drop in...
Way more lots than you can buy or sell. That's for sure.
  • #14
  • Jul 30, 2018 5:34am Jul 30, 2018 5:34am
to move 1 pip you need 10,000 lots equivalent to 1 billion USD
  • #15
  • Nov 27, 2018 2:04am Nov 27, 2018 2:04am
Quoting seem
to move 1 pip you need 10,000 lots equivalent to 1 billion USD
Even more; it’s not easy that much because of heavy volume. That’s the power of Forex market.
  • #16
  • Edited Nov 28, 2018 1:00am Nov 27, 2018 2:17pm | Edited Nov 28, 2018 1:00am
Quoting Batoobah
In any economic model, buying or selling has a direct impact in the price. I've read about scalping and high volumes in few seconds. My question is: how would a high volume transaction impact the price, or how much is it needed to move the price 1 pip in, say EUR/USD? I'm watching the tick movement, and suddenly 3 pips up and down in half a second. Was this a huge transaction by some bank? Was a company sold? I'll never move 10 lots, but if I did, would that have a direct impact or is it just a drop in the sea? I hear the answer: Just a drop in...
It's a good question but, sadly, one without a definitive answer. I used to deal professionally for large instituitonal portfolios. Sometimes you could move £100m with no price change, others times £10,000 would feel impossible without crashing the price; it all depends on market conditions at the time.

If everyone else wants to buy you can sell practically unlimited amounts and the price still goes up because the rest of the market is many magnitudes bigger than you. Equally, if you are trying to unload on an already weak market, almost any size will impact price detrimentally.

The sudden pip movements you talk about are true and it's normally market makers trying to square their books rather than genuine end business going throught the market. Remember, a market maker has to be quoting always, regardless of conditions and regardless of the shape of their book. If they are net long they want to lose some inventory to get flat - they look to make their money on the bid-offer difference, not position holding.

So, a long inventory market maker might push down their quote a few pips to ensure they are the best offer in the market and get hit first. As soon as they are flat they revert the quote back to 'normal' again. What you see is the price jump down and back up momentarily for no obvious reason.
  • #17
  • Last Post: Nov 28, 2018 7:23am Nov 28, 2018 7:23am
Quoting Oldtraderman
{quote} It's a good question but, sadly, one without a definitive answer. I used to deal professionally for large instituitonal portfolios. Sometimes you could move £100m with no price change, others times £10,000 would feel impossible without crashing the price; it all depends on market conditions at the time. If everyone else wants to buy you can sell practically unlimited amounts and the price still goes up because the rest of the market is many magnitudes bigger than you. Equally, if you are trying to unload on an already weak market, almost...
Thanks for your long detail answer! That’s the real story! I really appreciate your efforts.
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