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I`m a beginner and this has me wondering

Discussion in 'General Forex Talk' started by Andy_uk, Mar 21, 2012.

  1. Andy_uk

    Andy_uk Recruit

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    Hi all I`m new to forex and have been trading a demo account for about 3 months now , reading as much as i can cram into my day and your site has great information people like me so thanks for that

    However i have a question that has been bugging me for a while , it maybe a bit basic for you guys but i cant seem to figure this out or find anything about it and there are probably way more important things i should be worrying about

    In forex i gather that if i win then some random guy/bank/institution loses

    then in a hypothetical situation where for an instant everyone buys (or sells) a currency at exactly the same moment all around the globe , so there are in fact no losers , where would the money come from to cover the gains , what would happen , if anything at all?

    Anyway thanks for your time all

    Andy
     
  2. Pharaoh

    Pharaoh Colonel

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    At that point, the world would end. ;)

    It's actually not quite that bad. On trading markets, there must be a seller for every buyer. Forex has a lot more buyers and sellers than other markets, but the supply is not infinite. If every trader out there decided to buy the AUDUSD, the initial move would be slowed since many existing trades will be closed as stoploss and takeprofit numbers are reached. Other traders might have had pre-existing pending orders to short the pair if it spikes up, thus selling and balancing some of the buy orders. Eventually, if enough buy pressure happened, it would be the same as any other market where demand vastly outstripped supply - the price would go into a massive upspike. Assuming no one decided to close trades and just kept buying, liquidity would dry up, price would continue to spike upwards, and orders would not be filled. Finally, some smart investor would close a few positions (thus being paid billions of USD for each AUD sold) and have enough cash to buy a couple of states in the USA.
     
  3. WaveRider

    WaveRider Sergeant

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    Theoretically the scenario you describe could be applied to any market. But the bigger a market is and the more players there are, the less likely an exception to the rule is likely to happen. The rule being "for every buyer thre is a seller." The maket is so big and players buying and selling at many levels for many motives. If a price drops, one person panicks and closes position (buys), a bargain hunter gets greedy (buys) and a market mover thinks he can get others to panick or hit stops and sells more before his big buy.
     
  4. Andy_uk

    Andy_uk Recruit

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    Ahhaa right I see ,

    So human nature being what it is would prevent this happening mostly (maybe purely) due to the forces of greed and fear

    kind of self policing in a way ....

    Thanks again all :)
     
  5. Pharaoh

    Pharaoh Colonel

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    If you can convince a huge number of traders to go on a buying or selling spree for one forex pair, please let me know in advance. :D
     
  6. Andy_uk

    Andy_uk Recruit

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    Hehe yeh , form an orderly queue behind me and watch this space ;)

    thanks for making my "new posters anxiety" easier
     
  7. Romeo

    Romeo Sergeant

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    Don't forget that many of the brokers are market makers and they hedge your trades.
    Even STP brokers have liquidity providers that hedge some or maybe even most of the trades!
     
  8. ewan_savage

    ewan_savage Private, 1st Class

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    Interesting, I hadn't even stopped to think about that... kind of an abstract thought, but makes sense after thinking about it... thankfully it won't be happening!
     
  9. rallf

    rallf Recruit

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    Maybe if a couple of hundred FPA readers pooled resources we could make our own market?:cool:
     
  10. WaveRider

    WaveRider Sergeant

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    Definitely not with my account balance.:)
     

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