When selling a stock at market order, if you sell enough shares, price will drop alot depending on liquidity of the stock. How does it work with forex? I mean, you never see how many orders there are when say buying USD/JPY You just click a button and get filled instantly. How big of a size would you have to do before you didnt get filled instantly? Millions? Billions? It seems unreasonable to think that someone would come in to buy say 1000 lots (100 million dollars) of USD/JPY at 104.109 and get filled at EXACTLY that price for the whole order. Right?
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One Comment on “how do forex orders work as far as their size?”
sburtonhome 10th March 2010
Great question. When I first started trading Forex I had the same thought as you. At the time I was demo trading a Gain Capital account (I was an extreme newbie at the time – and would never recommend Gain). I remember taking some very large orders and being impressed at how fast the orders were filled. However, I was trading a demo account and not real money plus Gain had an incentive to "fill" those fake orders instantly to give me the feeling that it would be the same trading real money. When I did open my first real account I set up at MB Trading. At MB they show liquidity, meaning they actually tell you how much demand there is at a given price. I quickly learned that there is a maximum to how large of an order you can place and how quickly it will get filled.
Now, keep in mind there are different types of brokers. The market makers (such as Gain, Oanda) create their own artificial market in which you trade and will set internal limits as to how large of an order they will fill. There are also ECN and STP Brokers which, essentially provide a link between you and the liquidity providers (buyers and sellers). When you place an order there will only be a specific amount of liquidity at the price you want. If your order exceeds the liquidity than the broker will slip your price and fill part at price and the rest where there is liquidity. Think of this like any other market. There is only a certain amount of supply/demand at a given price. If supply disappears than price will go up, if demand disappears than price will drop. Most traders prefer to trade ECN and STP Brokers because of this and so let me explain how to identify liquidity when trading with one of them.
Think of this like any other market. There is only a certain amount of supply/demand at a given price. If supply disappears than price will go up, if demand disappears than price will drop. How fast you get filled depends on a couple important factors. 1) what currency pair are you trading? You will be able to trade much larger orders with pairs such as the eur/usd and gbp/usd than you would with say the eur/cad. 2) What time of day are you attempting to place the order? There will obviously be less buyers/sellers between the close of New York and open of Asia when no markets are open than when both New York and London are open at the same time. 3) What capacity do the broker’s liquidity sources have? Dukascopy for instance has the ability to fill much larger orders without slippage than MB Trading. To give you an idea, I have seen liquidity upwards of 50-60 million on the gbpusd and eurusd during peak market times at Dukascopy while MB was significantly less ( 5-10 million).