The foreign exchange market is a global marketplace where individuals convert national currencies. It is the largest and highly liquid asset market in the world. It is because currencies have global nature of commerce, business, and finance.
The significant driver of buying and selling a currency is money. However, other factors also influence purchasing and selling power of market participants. Let’s learn how much money is needed to move the forex market.
What Moves The Forex Market?
Forex is a globalized market, with traders and buyers engaging in daily trades worth trillions of dollars. Mostly money is what moves the market.
Moreover, macroeconomic events now greatly influence forex more than ever. It is because foreign currency trading has evolved into such a worldwide industry. The market fluctuations depend on macroeconomic variables, including inflation, interest rates, unemployment, and economic expansion.
Remember that financial events occur every second, and any news event might affect the currency market to move. Government, market behaviour, and natural disasters may also impact how the markets move.
You could predict that the forex market would change at other times, but it never does. However, a retail trader cannot influence the market on their own. It necessitates broad participation by market players and financial institutions.
How much money can move the forex market?
The money required to move the forex market usually depends on two variables. The first is the trading period, and the second is the currency pair you wish to change. Wherever big investors want the market to move, they distribute prices in that direction. The retail trader has a relatively less role in influencing price movement.
You can roughly estimate the amount of money that can move the forex market. The FX market trades more than $5.3 billion daily. You would potentially need around 10% of this amount to move the market.
However, it is realistic to believe that no one else besides significant firms has sufficient money to move important currency pairings.
Money required to move the market by one pip
The amount of money that can move the market by one pip varies on the currency pair.
For instance, consider the following example:
10,000 (units) x 0.0001 (one pip) = $ 1 per pip
If the EUR/USD pair moves just one point, or 0.0001, you may lose or gain $1 on a buy or sell position of 10,000. Alternatively, you could require $1 to move the market by one pip.
The money required to move the market by one pip differs from one currency to another. It is measured in dollars per PIP for a currency pa like EUR/USD, while for a currency like EUR/GBP, the currency value will be in Pound Sterling.
Bottom Line
Economic variables that affect the strength and value of a country's currency eventually move the forex market. The forex market is more user-friendly for traders than other markets. Focusing on the macroeconomic principles that move currency prices might make it more beneficial for new traders.