In my past life where I paid attention to the spot currency markets, particularly the euro, I recall that it really likes to hover around round numbers. However, I have noticed time and time again that the euro currency futures contract (6E) tends to also really like round numbers. As there are hundreds of billions of dollars traded in spot transactions alone every day on the euro spot, compared with the relatively low volume of the futures contract, which I would suppose is simply arbitrated based on the spot, I just find it a bit odd. Just a curiosity, nothing more.... any thoughts?
Of course, there have been numerous discussions here about the validity of numbers and the "random lines" theory which I think has a lot of merit. It's probably my bias that makes me see the euro stop at a round number, because I'm noticing the round number, not where it stops. However, look at the attached chart... I just find it interesting that the futures contract hits these levels. I know this is just one example, and I observe quite often that this happens--I can post more examples if desired.
The following user says Thank You to josh for this post:
There is an approach that i know which consists to scalp a thin slice of price action when price goes between numbers that end like this xx20..xx30 and xx70..xx80. The logic beeing that price likes to target round numbers that end with xx00 or xx50. The theory says that around these numbers there is a channel that may act as a speed bump and that once price settles on one side say you have a price forming a congestion at a round number like 1,4300 then when price crosses the speed bump zone roughly 20 ticks on each side of a round number then there is a big chance it will move to the next round number. Meanwhile you take your minimum 10 ticks between 1,4320...1,4330.
The beauty of this approach is that you don't need any mathematical indicator, just pure price action. It works well on the Euro but not as well on indexes.
What data feed are you using josh? I used to think similarly, but now that I trade EUR/USD via MB Trading as well as TT/Velocity, I think less of it. That is because there is often a 20 pip difference in prices between these two. Still, you will see on the MBT feed how price will stop at 1.44 but on the FXCM IQfeed or the TT feed it is 1.4420 for instance. And vice versa, where price may stop on TT at 1.4400 which is 1.4380 on MBT.
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The following user says Thank You to Big Mike for this post:
Thanks Mike, I'm using a kinetick feed. I suppose it's a case of me seeing the round numbers on 6E and wondering if there's any way that's anything other than random. Because I generally assume that the 6E is a mirror of the spot (in movement of course, as you said there is the price differential), and that the 6E in no way influences the spot (in other words, no one would buy or sell EURUSD because of what the 6E is doing, whereas the inverse is true).
This is in contrast to, for example, two-way arbitration which occurs in the s&p cash vs. the futures (as stocks are bought and sold, and futures are bought in sold, as the spread gets too out of balance). However, I suppose it's possible that someone would buy or sell EURUSD based on the futures contract, but somehow I doubt it. If anyone has any info on this specifically, I'd love to be educated about it!