Apiary Fund Blog

Banks' Influence on Forex

[fa icon="calendar"] May 13, 2019 6:00:00 AM / by Lukas MacMacKen

If you think about it, banks control almost every dollar that is spent in the world. Cash is a dying payment method being replaced with the tap of a phone, swipe of a magnet, and push of a button on an app Each of those pulls the money from your bank and puts it into someone else's. Even on payday, unless you’re working under the table for a nice cash gig or serving food for tips, your main income is a paycheck you put in the bank or an electronic transfer of funds. But, what do banks have to do with FOREX?

Since banks control most of the money and also control traded accounts such as IRAs or investment savings accounts, banks trade a lot. Their volume accounts for the largest portion of trades passed through the FOREX markets. If you look at flash crashes throughout FOREX history, most of those flash crashes are caused by an error with decimal placement. A trade meant to be $100 million but accidentally entered as $1 billion is a large change. Shawn Lucas has worked on a bank’s trading floor before and has seen the sheer quantity of trades just one bank can do. So, even if we don’t consider the error of the dreaded decimal (let’s be honest, if you’ve traded long enough, you’ve probably misplaced a decimal and traded a few minilots instead of microlots, or worse…), banks are the main market movers. While one bank doesn’t know for sure, if its speculation matches a few other big banks and some high volume trades are placed, the market will react.

Now, other than just your typical banks, central banks play a huge role in FOREX. Can you recall the last interest rate change that didn’t move the market? As central banks release inflation reports, expectations, interest rate changes, and more, that has a great effect on the market. If the interest rate of a certain country increases, or an extremely positive outlook of the economy is released by a central bank, the value of the currency rises. Central banks are the main price setters of the FOREX market as their goal is to get the currency competitive with others or to stabilize a currency that has taken a path of its own. This is a primary reason that Shawn Lucas enjoys the central bank announcements so much is that the central bank has a set goal and it can usually with a good amount of certainty perform a specific way.

With all the power banks have in trading, know that if you’re trading on your own or following someone like Shawn Lucas around in his trading sessions, you'll commonly see those live sessions during a central bank announcement or early in the morning when more banks are open. And to think that the big banks primarily trade off of support and resistance only. The next time you have a negative trade and were so sure it was heading in the direction you thought, you can blame the big banks for the change in direction.

Topics: Trading, Forex, trading forex, shawn lucas, banks

Lukas MacMacKen

Written by Lukas MacMacKen

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