Tuesday, March 17, 2009

Trade Mechanics


Given that there is in excess of $2 trillion a day being traded on the forex market, it’s easy to believe that there will always be enough liquidity in the market to do what needs doing. Sadly, belief doesn’t negate the truth that for each and every buyer in the market, there MUST also be a seller, otherwise no transaction can occur. If an order is too big to handle at the current price, then the price has to move to a point where there is enough open interest to cover the transaction. Each time you see a price move even a single pip, it’s an indication that an order was transacted or executed which “consumed” the open interest at its existing price. Prices can move in no other way.
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