How markets workUpdated 3 min readBy the FXNOD team
Why do market prices go up and down?
Market prices go up when buyers are willing to pay more than the current price to get in, and down when sellers are willing to accept less to get out. Every move is an imbalance between the two. News, interest rates, earnings, fear and greed matter only because they change how many people want to buy or sell, and how urgently.
What a price actually is
The price on your screen is the last price at which a buyer and a seller agreed. Behind it sit two queues: buyers bidding at lower prices and sellers offering at higher ones. When an impatient buyer takes everything offered at the best price, the next trade happens higher. That is a price rise, and nothing more mysterious.
What changes the balance
| Driver | How it moves prices | Example |
|---|---|---|
| Interest rates | Money flows towards currencies and assets that pay more | A central bank raises rates and its currency strengthens |
| Economic data | Changes expectations about growth, inflation and rates | Inflation comes in above forecast |
| Company results | Change what a share is thought to be worth | Profits beat expectations |
| Politics and shocks | Raise or lower the appetite for risk | An election result or a conflict |
| Positioning | Crowded trades unwind fast when they go wrong | A sharp reversal after a long, steady trend |
| Liquidity | Thin markets move further on the same order | A jump in quiet holiday trading |
Why good news can push a price down
Markets trade expectations, not facts. If traders expected excellent news and received merely good news, those who bought in advance sell. The saying is buy the rumour, sell the fact. What moves a price is the gap between what happened and what was already priced in.
Why prices wiggle when nothing is happening
Most short-term movement has no story behind it. It is the ordinary flow of orders: a fund rebalancing, a company hedging, traders taking profit. On timeframes of seconds and minutes this noise dominates, which is why very short-term direction is so hard to predict.
Synthetic indices are different
A synthetic index, such as Deriv's volatility indices, has no buyers and sellers setting its price. The price is produced by a random number generator with a chosen level of volatility. It goes up and down because it is built to, and no news, order flow or pattern explains or predicts the next move.
What this means for a trader
- You do not need to explain every move. Most have no useful explanation.
- Know which drivers matter for your market, and when they are scheduled.
- Size trades for the moves that do happen, not for the ones you expect.
Questions people ask
- Who decides the price of a market?
- Nobody decides it. It is the most recent price at which a buyer and a seller traded, and it changes as their orders change.
- Why do prices move so fast after news?
- Because many traders react at once while those providing prices step back. Fewer offers and more urgent orders mean each trade moves the price further.
- Can anyone predict where the price goes next?
- Not reliably over short periods. Skilled traders look for situations where the odds or the payoff are in their favour, and they still lose a large share of their trades.
Watch it on a live chart
Open Trade Pilot with your Deriv demo account, pick a market, and see how the price behaves tick by tick, with virtual funds.
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