So I've been thinking about analysing forex market hours where big banks and institutions with all the volume decide to take profit in a currency or pair. How does money flow and where does it flow? Anyone tips on this one?
This is how banks were competing, collaborating, manipulating and tricking each other a long time ago. It may be a lil different now:
It impresses me that you are thinking in this particular way, whether your inquiry leads to anything productive or not, I am impressed with the way you are thinking. Smart! My comment goes to the kind of thinking you are doing. It's good. By the way, when you have time, try to read everything Soros has written. Not always easy. Start with the Alchemy of Finance and then go to the Soros Lectures at the Central European University. You will learn the difference between the way markets are portrayed, by brokers, the media, the government, and reality. If you haven't studied Economics in College you may need to study it on your own to be able to read Soros beneficially. After that, read works by the MMT economists, chiefly Wray and Wilson. But that will only help you understand money; it won't help much in the markets. They are largely irrational. which you will learn from reading Soros.
1. I’d rather like to know where they INITIATE a position. Where they take a profit would be a distant second for me. 2. They iceberg orders, use multiple accounts, multiple clearing firms. They can even use ‘give-up agreements’ and not bother with multiple accounts. The Commitment of Traders Report would be useless. The only parties who would be privy to those order tags would be the exchange internal audit and compliance Department, and SEC / CFTC. Even if, for example, you knew that Morgan Stanley just sold 3,000 Euro/USD futures - it would be a huge mistake to assume that it was for the bank’s proprietary desk. MS services hundreds of hedge funds, hundreds of family offices, and dozens of private equity firms. MS services commercials and institutional accounts. Again, you would need to be able to glean specific individual account identifier tags. And that information is absolutely not disseminated outside certain personnel at the exchange. The other point is that what you might assume is spec coming from a bank desk is much more likey than not a hedge. Let’s say that Caterpillar sells at a fixed price contract a large order of ore transport trucks to an Australian mining conglomerate. The contract specified a fixed cost denominated in AUD and a 12 month delivery timetable. Assume that Caterpillar does their commercial banking through Chase. The Caterpillar CFO wants to hedge his FX risk, so he calls up the JP Morgan FX desk and sells AUD Swaps. In turn, the JP Morgan Desk sells an appropriate hedge in either the futures or the cash market or some combination that yields the minimum slippage. At least 90 percent of what bank desks do is make markets and book the differential. You don’t have eight traders manning a desk in NYC each just buying and selling on spec all day long. Doesn’t happen. I’ve got friends and former clients who work on bank desks - for the most part they are buying bids, selling offers, and making markets. The head of a bank desk isn’t going to let some new hire sit there with a chart and wing around 1,000’s of FX futures all day long. That’s not their business model.
They all do the same thing over and over and over again: 1) positions are initiated or closed in locations that the most pain is inflicted by the participants 2) This works three fold: Large participants need volume to transact Brokers need to get paid and love volume Exchanges need the revenue from the volume to keep the lights on The art to the entire game is to know where these locations in the market largely reside...this is the art. If you know where these locations are...guess what, that is where the market is headed. This is the fundamental structure of the market, the art is understanding where these likely places are and placing bets that the market will hit that area. This happens in all time frames, but the larger traders operate on longer time frames. IF you are learning to trade, understand that 80% of the time the market is targeting these locations and place bets that they will hit that location. 20% of the time they are looking to change direction at these locations. Conclusion: spend less time picking changes in trends and more time finding areas the market wants to resolve ie trend continuation
No If by your post you mean to imply that somehow Algos “know” or uncover the identity of those counterparty identifier tags? No. In fact, Algos are required by the CME to be approved before use and they have their own identifier tags.