What is the cause of sudden price spikes in the FOREX market?
If you do not understand the volatility of the fx market, you need to stop trading it, immediately. There are many reasons that fx is riskier than other types of investing, and you bear those risks whether you understand them or not. Below are a number of reasons why fx trading has high levels of risk: 1) FX trades on the relative exchange rate between currencies. That means it is a zero-sum game. Over time, the global fx market cannot 'grow'. If the US economy doubles in size, and the European economy doubles in size, then the exchange rate between the USD and the EUR will be the same as it is today (in an extreme example, all else being equal, yes I know that value of currency /= value of total economy, but the general point stands).  Compare that with the stock market - if the US economy doubles in size, then effectively the value of your stock investments will double in size. That means that stocks, bonds, etc. tied to real world economies generally increase when the global economy increases - it is a positive sum game, where many players can be winners. On the long term, on average, most people earn value, without needing to get into 'timing' of trades. This allows many people to consider long-term equity investing to be lower risk than 'day-trading'. With FX, because the value of a currency is in its relative position compared with another currency, 1 player is a winner, 1 player is a loser. By this token, most fx trading is necessarily short-term 'day-trading', which by itself carries inherent risk. 2) Fx markets are insanely efficient (I will lightly state that this is my opinion, but one that I am not alone in holding firmly). This means that public information about a currency [ie: economic news, political news, etc.] is nearly immediately acted upon by many, many people, so that the revised fx price of that currency will quickly adjust. The more efficient a market is, the harder it is to 'time a trade'. As an example, if you see on a news feed that the head of a central bank authority made an announcement about interest rates in that country [a common driver of fx prices], you have only moments to make a trade before the large institutional investors already factor it into their bid/ask prices. Keep in mind that the large fx players are dealing with millions and billions of dollars; markets can move very quickly because of this. Note that some currencies trade more frequently than others. The main currency 'pairs' are typically between USD and / or other G10 country-currencies [JPY, EUR, etc.]. As you get into currencies of smaller countries, trading of those currencies happens less frequently. This means that there may be some additional time before public information is 'priced in' to the market value of that currency, making that currency 'less efficient'. On the flip side, if something is infrequently traded, pricing can be more volatile, as a few relatively smaller trades can have a big impact on the market.  3) Uncertainty of political news. If you make an fx trade based on what you believe will happen after an expected political event, you are taking risk that the event actually happens. Politics and world events can be very hard to predict, and there is a high element of chance involved [see recent 'expected' election results across the world for evidence of this]. For something like the stock market, a particular industry may get hit every once in a while with unexpected news, but the fx market is inherently tied to politics in a way that may impact exchange rates multiple times a day. 4) Leveraging. It is very common for fx traders to borrow money to invest in fx. This creates additional risk because it amplifies the impact of your (positive or negative) returns. This applies to other investments as well, but I mention it because high degrees of debt leveraging is extremely common in FX. To answer your direct question: There are no single individual traders who spike fx prices - that is the impact you see of a very efficient market, with large value traders, reacting to frequent, surprising news.  I reiterate: If you do not understand the risks associated with fx trade, I recommend that you stop this activity immediately, at least until you understand it better [and I would recommend personally that any amateur investor never get involved in fx at all, regardless of how informed you believe you are]. It depends on the currency pair since it is much harder to move a liquid market like Fiber (EURUSD) or Cable (GBPUSD) than it is to move illiquid markets such as USDTRY, however, it will mostly be big banks and big hedge funds adjusting their positions or speculating (not just on the currency or market making but also speculating in foreign instruments). I once was involved in a one-off USD 56 million FX trade without which the hedge fund could not trade as its subscriptions were in a different currency to the fund currency. Although it was big by their standards it was small compared with the volumes we expected from other clients.  Governments and big companies who need to pay costs in a foreign currency or receive income in one will also do this but less frequently and will almost always do this through a nominated bank (in the case of large firms).  Because they need the foreign currency immediately; if you've ever tried to pay a bill in the US denominated in Dollars using Euros you'll know that they aren't widely accepted. So if I need to pay a large bill to a supplier in Dollars and all I have is Euros I may move the market. Similarly if I am trying to buy a large number of shares in a US company and all I have is Euros I'll lose the opportunity. Forex is really not that volatile compared to other major asset classes like stocks and commodities. But still markets are generally unencumbered in the major pairs and therefore spikes in volatility can happen. Take what happened with the Swiss Franc a few years ago for example, or GBPUSD recently with news of Brexit. This is less the case with highly regulated currencies like the Chinese Yuan (CNY) Volatility is caused by excessive buy or sell pressure in relation to the available liquidity at the current price. This is usually caused by large buy or sell orders placed with interbank desks by institutions (often including other banks) and central banks. News can also sometimes have a dramatic impact and cause traders to adjust their prices significantly and very quickly.
"Do you work in this field or something? You sound like a very passionate apologist.   &gt;why shouldn't traders be able to decide (as a group) what the companies are worth?  Because often they purposefully distort value so they can either a) buy low and profit or b) sell high and profit. Why are you so anti-government? I'd rather have people I elected and who are accountable to me determining things instead of private and highly selfish interests who represent only themselves.   &gt; do you really think that intraday (or even intraweek) prices are really representative of what ""the market"" thinks a company is valued at?  If not, why bother with the charade in the first place? What is the point of wild price fluctuations even throughout a single day, if they, as you admit, do not represent value? The whole concept of short term profiting off of these pointless (and often engineered) market movements is silly, and adds nothing to society whatsoever (the original point of the stock market). Further, that money needs to come from somewhere, and that typically is long term investors who want a pension at some point and don't feel like trading at microsecond timeframes because they do something useful instead. Its disgusting.  &gt;compared to the effect of long term buy and holders changing their mind about a company, the effect of any HFT people on the valuation of a stock is practically nothing - like I said, there's just about no evidence of speculators causing significant mispricing over any significant period.  So you're saying just because the aggregate effect is small(ish), no one should worry about it? That is the absolute stupidest thing I have ever heard! If I steel a car every other week, who cares right? Millions of cars are made every year, the effect of me stealing 20 or 30 wont change car markets in any noticeable way...   Further, speculation in commodities (mainly food) has indeed caused enormous mispricing and incaculabe human suffering in the developing world." "&gt; At what point do people's bad decisions stop being society's burden to bear? If I decide to take on insurmountable debt because I don't know any better, should everyone else be forced to pick up the tab? That may sound heartless, but it's not.  She isn't asking for society to bear her burdens. She's asking for society to pay her a reasonable wage for her labor.   &gt; A $15/hr minimum wage would ruin our economy and cause a lot more suffering and homelessness.  So you read the article, but then chose to ignore all the arguments showing that this would not, in fact, ruin the economy? Tell me - when drug companies hike the prices of essential medicine, do you also argue that it would ""ruin our economy"" or ""cause a lot more suffering""? Or do you just shrug and go ""they're charging what the market will bear""?  Why is that for folks like you, it's always fine if companies raise prices; but if employees want a higher wage, it's an outrage?" Foreign Exchange (Forex) trading is extremely difficult to do profitably over time – for retail investors and institutional investors alike. Many Forex traders enter the markets with hope of a profitable trading adventure, only to find themselves overwhelmed by the complexity of the markets. Binary options trading enables traders who have experienced difficulty in the Forex market to trade options. "Just read the book Flash Boys by Michael Lewis.  It describes this process in detail, albeit a bit more dramatically than it has to.  Basically what ""HFTs"" (high frequency traders) do is they set up their line to the exchange so its microseconds faster than everyone else.  Then they test out the market with tiny orders, seeing how fast it's getting filled - if these are getting filled immediately, it probably means there's a big order coming in from an investor.  So the algorithm - and it's all algo-based obviously because no human can remotely hope to catch this - will detect that as soon as there's a spike in volume, it will buy all of the volume at the current price, and sell it back for higher, forcing the big investor to take on higher prices.    Another case is that some HFTs can basically buy the entire trade book from an exchange like Nasdaq.  So every time someone places a market order for 200 shares of a 6.5 stock, the HFT will see it, buy up all the current stock from say 6.5-6.6 and sell it back at 6.7.  Not rocket science if you already get info about the trade coming in, in fact this is basically market making but performed by an ""evil HFT"" instead of a ""trustworthy bank.""    But honestly there are a lot more ways to make money from HFT than front-running, which isn't even possible anymore because exchanges no longer sell their books to HFTs." "This is a classic correlation does not imply causation situation.  There are (at least) three issues at play in this question: If you are swing- or day-trading then the first and second issues can definitely affect your trading.  A higher-price, higher-volume stock will have smaller (percentage) volatility fluctuations within a very small period of time. However, in general, and especially when holding any position for any period of time during which unknowns can become known (such as Netflix's customer-loss announcement) it is a mistake to feel ""safe"" based on price alone. When considering longer-term investments (even weeks or months), and if you were to compare penny stocks with blue chip stocks, you still might find more ""stability"" in the higher value stocks.  This is a correlation alone — in other words, a stable, reliable stock probably has a (relatively) high price but a high price does not mean it's reliable. As Joe said, the stock of any company that is exposed to significant risks can drop (or rise) by large amounts suddenly, and it is common for blue-chip stocks to move significantly in a period of months as changes in the market or the company itself manifest themselves. The last thing to remember when you are looking at raw dollar amounts is to remember to look at shares outstanding.  Netflix has a price of $79 to Ford's $12; yet Ford has a larger market cap because there are nearly 4 billion shares compared to Netflix's 52m." "Strategy would be my top factor.  While this may be implied, I do think it helps to have an idea of what is causing the buy and sell signals in speculating as I'd rather follow a strategy than try to figure things out completely from scratch that doesn't quite make sense to me. There are generally a couple of different schools of analysis that may be worth passing along: Fundamental Analysis:Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Technical Analysis:In finance, technical analysis is a security analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the same tools of technical analysis, which, being an aspect of active management, stands in contradiction to much of modern portfolio theory. The efficacy of both technical and fundamental analysis is disputed by the efficient-market hypothesis which states that stock market prices are essentially unpredictable. There are tools like ""Stock Screeners"" that will let you filter based on various criteria to use each analysis in a mix.  There are various strategies one could use.  Wikipedia under Stock Speculator lists: ""Several different types of stock trading strategies or approaches exist including day trading, trend following, market making, scalping (trading), momentum trading, trading the news, and arbitrage.""  Thus, I'd advise research what approach are you wanting to use as the ""Make it up as we go along losing real money all the way"" wouldn't be my suggested approach. There is something to be said for there being numerous columnists and newsletter peddlers if you want other ideas but I would suggest having a strategy before putting one's toe in the water." People are trying ideas like this, actually.  Though they generally aren't very public about it.  While keshlam ventures into hyperbole when mentioning Watson, he is certainly correct human language parsing is a extremely hard problem. While it is not always true that the big players will know before the news (sometimes that would qualify as insider trading).  The volume spike that you mention generally comes as the news arrives to the major (and minor) players.  So, if you have an algorithm run after the volume spike the price will likely have adjusted significantly already. You can try to avoid this by constantly scanning for news on a set of stocks however this becomes an even harder problem.  Or maybe by becoming more specific and parsing known important and specific news sources (farm report for instance) and trying to do so faster than anyone else.  These are some methods people use to not be too late. You are correct, a possible Dead Cat Bounce is forming on the stock markets. If it does form it will mean that prices have not reached their bottom, as this pattern is a bearish continuation pattern. For a Dead Cat Bounce to form prices will need to break through support formed by the lows last week. If prices bounce off the support and go back up it could become a double bottom pattern, which is a reversal pattern. The double bottom would be confirmed if prices break above the recent high a couple of days ago. Regarding the psychology of the dead cat bounce pattern, is that after a distinct and quick reversal of prices from recent highs you have 2 groups of market participants who create demand in the market. Firstly you have those who were short covering their short positions to take profits, and secondly you have those who are looking for a bargain buying at what they think is the low. So for a few days you have the bulls taking over the bears.  Then as more less positive news comes in, the bears hit the market again. These are more participants opening short positions, but more so those who missed out in selling previously because prices fell too quickly, seeing another opportunity to sell at a better price. So the bears take over again.  Unless there is very good news around the corner it is likely that the bears will stay in control and prices will fall further. How to trade a dead cat bounce (assuming you have been stopped out of your long possistions already)? If you are aggressive you can go short as prices start reversing from the top of the bounce (with your stop loss just above the top of the bounce). If you are more conservative you would place your entry for a short position just below the support at the start of the bounce (with your stop above the top of the bounce). You could also place an order for a long position above the top of the bounce if a double bottom eventuated. A One Cancels the Other (OCO) would be an appropriate order for such a situation.