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Chapter 2, Part II. And what the about the stock market? Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 14, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    MYTH #2 The FOREX market is much less influenced by analysts' opinions than the stock market.

    True

    In fact, this is an old story, when well-known analyst of large brokerage company gives some recommendation on some stock that is not necessary the real their opinion. This is a big game of big men and the investing public is just a puppet in their hands. You can easily find these facts in the history, when large brokerage firms had held “Buy” recommendation on shares that were falling like a stone. I give you just one example for what this could be done, but there are others also. This brokerage firm has an order for selling the large number of these shares from a big client, or may be this firm itself has a large number of shares and they had already started to sell them off gradually, so they need to hold the price as high as possible.

    Current law has a basis for punishing these abuses currently and although the government tries to control these facts and punish for price manipulation, it’s very difficult to prove it. And in spite of any punishment procedures this happens again and again, because the risk/reward ratio for these companies usually is very large.

    There is couple of things that make this possible. First, stock analysis is not simple task to do and a very small number of individuals really do it by themselves. You have to be confident in fundamental analysis, math, valuation and book-keeping to do it. This kind of work demands a lot of time. Usually, the public buys some internet bulletins or something like that and it leads to the possibility of influencing public opinion by large brokerage companies. Second, 5% of shares of overall free float is a big amount. Shares spread widely between lots of participants, that’s why if somebody with large amount of shares intends to buy or sell, it could be a big influence on market behavior.

    MYTH #3 The FOREX market can’t be ruled by large participants, at least in the long-term

    True

    We’ve talked about it already in previous chapter. Even central banks can’t move FX market prices at will for an extended period of time. Yes, a Central Bank can initiate a strong, short-term move with currency intervention, but can’t hold it too long because of the huge trading volume.

    In opposition to the FOREX market, the stock market is very sensitive to the buying and selling big amount of shares by anyone, for example, large mutual fund. Even rumors can lead to strong movement in price.​
     
    #1 Sive Morten, Dec 14, 2013
    Lasted edited by : Feb 5, 2016
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