An in-depth understanding of the rules of the game on the Forex market will be the foundation for achieving success.Understanding in evaluating the role of the broker in detail, namely whether you judge that the dealer is manipulating quotations or is actually a true reflection of the market. This is the most important thing for traders in starting their trading . Understanding the price quoting will greatly help traders , they will realize that they are not cheated and will help them minimize the number of common mistakes.
Some Special Situations
Important news suddenly flashes on your screen, certainly the right moment to jump into the market. At that time, there were certainly many traders who began to busy submitting quotations. This situation often occurs, where traders start hurrying their transactions when important news is released, but they find quotes with delays or by spreading large spreads , then interpreting it as part of their broker’s deception.
Let’s look at the following example from a different perspective. As soon as important news hit the market, brokers began trying to protect their clients’ positions with larger banks, and what did brokers see? None of the big banks offer quotations. This is indeed very common not to pursue prices when important news has just been released; but if you still insist, maybe you will get a 50 pip spread . Based on our experience, I can say that many traders who had jumped into the market as soon as news was released – ended in disappointment. Markets often move in unexpected directions, often contrary to what we predict. Ninety percent of the total time brings losses, sometimes even in larger amounts.
Another situation, where the market looks calm and traders repeatedly request quotations and get actual market prices (here the actual market prices are usually in accordance with what is shown on Reuters or Dow Jones, so this information cannot be misinterpreted). Although requests continue to be submitted, the trader still does not make any transactions. So, what do you think of brokers? Because traders continue to make requests, the broker does the same to the counterparty . This counterparty can provide brokers with what is called a ” Choice “, which is a quote without a spread , and as if to say “cheer up, buddy!” Maintain and get a Choice quote . And according to unwritten dealeretiquette, you can’t refuse it, once you reject it, then you might never see prices like that again. Choice quotes are rarely given. Generally, the bank will only widen the spread , because the large amount of demand in a calm market condition is very unnatural.
Then another question arises, namely how an ordinary trader can see the “real” market conditions, and what is the market like?
Let’s start with what each trader sees on their screen (through sources such as Reuters, Dow, DBC etc.). These quotations are indications or instructions where there is no involvement of the bank in the process of buying or selling at all prices. The quotations can come from various sources, ranging from famous market makers to institutions that are less trusted. Quotation providers can enter their quotes manually or automatically. However, these two methods remain error-prone when there is a shift in prices in a more favorable direction for certain speculators (something big, client stop-loss that brings 5-7 pips of profit. How can you resist it?). Another important thing is about the number of counteragents contained in the system. For example, Reuters, they use data from banks with a total of about 2,600 banks. Dow Jones, about 1,000 banks and DBC around 500 banks. We monitor quotes from these three sources for several months and observe the development of quotations against the actual market. Occasionally one night, DBC did not renew the Swiss Franc for 20 minutes and the price was different from Reuters by 70 pips (when the market was quiet). Something unnatural is also experienced by the Dow Jones when there is a sharp movement. So there is an impression about the Dow Jones, that they are the brokerage companies themselves, and in certain moments they show a market condition that has been left behind, even though a few minutes later their charts are aligned with Reuters. This tells you about the position of the market price in certain minutes. I do not intend to accuse Dow Jones, they have many advantages compared to other sources, especially in terms of analysis and streaming news about Forex. While related to their quota delays, it will happen.
How Can You See the Real Market?
There are several systems that only combine large banks, such as ELECTRONIC BROKER SYSTEM (EBS), DEALING2000 / 2 (D2) etc. When quotations are provided through a system like this, the bank is asked to execute a transaction at the price that has been given. In this sense, the system becomes an electronic broker. Large banks will automatically distribute quotations received from the system. But need to be careful, here there is a kind of trick and we are often fooled, namely the quote is transmitted by a machine, not by humans. For example, the CHF market for the past 1 second is 52-55, then 52, and the next Bid price becomes 15 (a Bid from 20 minutes ago). This program can only take an average value between 15 and 55, place a spread of 5 pips and provide quotation information from 30-40. However, the actual market is still worth between 50-52. At night, the error can last for half an hour or up to an hour. In addition, the information on your screen will continue to be updated because other banks also use similar types of programs.
However, the situation above is very foreign to EUR, JPY and GBP, so you must keep abreast of the quotes given by the more respected banks such as BANK ONE (AS), BARCLAYS (BR), RZB (AUSTRIA), ALLIED ( IRELAND), DEMIR (TURKI), SOCIETE GENERALE (FRANCE), and ANZ (AUSTRALIA). Of course this will not help much in seeing the real CHF market, as explained above.
Do not ignore futures contracts on currencies (you can specify spot prices using a forward discount , this information is also available in information systems). Through this information, you can solve the problem of finding the real EUR and GBP market.
After all, I still want to invite you back to meet the Swiss Franc. If we have converted the price information from the futures market into the spot market price, then we will see a spread of about 12 pips, which will slightly increase our doubts about the quotation provider credibility (after that, the spread standard on CHF becomes 5 pips). As a result, in determining the market level for this currency, it is very important to continue to monitor the EUR value and the lower level value, namely GBP. You should not be easily affected by fluctuations in the CHF value if the euro does nothing.Many people trade CHF because they think that 5 pips on CHF is almost the same as 3 pips on other currencies. What we have discussed above can still be considered, although the overall benefits are not yet clear. However, in the long run this will be better, and may be a price that is worth paying without having to worry about the reliability of your broker.
To find the real market, please pay attention to quotations from the following sources:
- EUR – SOCIETE GENERALE, ALLIED, BANK ONE, FUTURES;
- GBP – BARCLAYS, BANK ONE, FUTURES;
- JPY – SOCIETE GENERALE, RZB, ANZ;
- CHF – FUTURES or CROSS RATE with EUR.
If you are an active trader , we recommend trading in the following hours:
- EUR, GBP, CHF – from 10:00 until 22:00;
- JPY – from 3:00 p.m. to 10:00 p.m., 3:00 p.m. to 8:00 p.m.