Importance of order flow in forex trading

 By understanding order flow, traders can better anticipate price movements.

They can also make more informed trading decisions.

Importance of order flow in forex trading

In order to be successful in forex trading, it is important to understand the concept of order flow. This includes understanding how buyers and sellers interact to create price movement. By understanding order flow, traders can better anticipate price movements and make more informed trading decisions.

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Forex trading and order flow

The spot foreign exchange market is the most traded financial market in the world, with a daily trading volume that can reach $6.6 trillion. 

Each time you enter an order on an online trading platform, the order will be executed electronically. Some large trading orders can then be completed through verbal negotiation (broking between traders).

For example, a Citibank trader wants to sell 200 million euros, in order to fill the order at the best price as soon as possible, a Citi trader needs to split 200 million euros into several orders, request quotes from market makers such as JP Morgan negotiation, UBS or Goldman Sachs for the best price and then fill the order one by one.

As you can see, the execution of large orders are generally interbank market institutions.

The order flow for forex trading comes mainly from the interbank market, which produces nearly half of the global forex trading order flow on a daily basis. Since the liquidity of the foreign exchange market is mainly achieved through the interbank market, it is necessary to study how these interbank institutional participants use order flow information to make trading decisions.

What is demand flow?

Financial institutions, such as banks, usually have a large number of clients around the world who may then need to trade forex. Thus, these financial institutions are very active in markets such as interest rates and commodities, and can act as intermediaries, mediating orders between buyers and sellers, thus generating an order flow.

The key to trading using order flow is to define 'Depth of Market' / 'Depth of Market' (DOM). Depth of Market reflects the depth of order information in the forex market, as well as the level of exchange rates at which clients are willing to trade.

An order flow is similar to an order list that tracks market fluctuations. Institutional clients of banks usually do not pay attention to every part of the price movement, they just choose a price level suitable for traders to carry out, which is equivalent to a specific order. On the other hand, order flow allows traders to see what volume is being traded at a certain price level, and then they use this information to trade and generate potential profits.

Market order effect and market depth

For example, if you find a large number of sell orders for EUR/USD at 1.1000, this does not mean that these large sell orders will be executed, because if the exchange rate does not touch the level 1.1000, then these orders will not be filled full, and the exchange rate will not decrease​ sharply when it touches 1.1000; In addition, such orders may also be canceled before their execution, and after their cancellation, the orders after cancellation will not affect, the order will not affect the exchange rate movement.

Order flow reflects all orders of market traders, including the direction, price and volume of orders. Many traders use order flow information to increase their trading advantage. Accordingly, order flow trading is more convenient in the futures market, where the forex market cannot see specific data such as trading volume.

Of course, this does not mean that the trader can trade in advance, since the client can cancel the trading order at any time.

If you are not an institutional trader, it can be difficult to get an order flow. Most institutional traders use EBS or Thomson Reuters Dealing, which are platforms that allow them to develop internal order flow indicators.

In other words, when the broker has direct access to the EBS platform, it is trading directly on the underlying liquidity market, at the "deep liquidity" level, so that order flow information can be viewed directly.

Order flow in the options market

Trading as an individual does not allow you to access "market depth" and order flow information. Fortunately, individual traders can turn to other markets, such as futures, ETFs, and options markets, to speculate on market sentiment.

The trading volume in the futures market reflects the total trading volume of a particular contract. The liquidity of futures contracts for foreign currency pairs is very high, which ensures that currency rates in the futures market and the OTC market are consistent and prevents arbitrage activities.

If there is a sharp increase in futures trading volume around a certain time or price level, it is likely that traders will enter the process. However, the problem is that you cannot know this information in advance, so you must determine if this sharp increase in trading volume will push prices higher or weaken them.

You can also use information about open positions in the market to determine market sentiment. If the volume is greater than the volume of open positions, then new orders enter the market, which indicates more positive market sentiment. If there are no new orders entering the market, this indicates low market sentiment.

In addition, data on the options market is very useful, and, like the futures market, can help determine long and short market sentiment.


The order flow is valuable information for institutional and retail traders alike. Traders use forex order flow information to understand whether the market is likely to be trending or stagnant. 

The idea of ​​order flow is the process of understanding the exact structure of the market from each trade, digging into the information, sentiment, and real buying and selling force variation that the market brings from the sudden trade data. 

However, the market is developing and the information in the candles is gradually decreasing, so we need to put a microscope to observe the information contained in each trade in the order book.

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