Aggressor is a term used in forex trading a lot. But have you ever wondered what moves the forex market?
Why do prices go up and down so quickly? The answer lies in how people buy and sell currencies.
And the term involved in this movement is the aggressor. But who is the aggressor in forex trading, and why are they important?
If you have never heard this term before, don’t worry. We will explain it in the simplest way possible so that by the end of this article, you will understand what an aggressor does, how it affects the market, and why it matters to traders.
In This Post
What Is an Aggressor in Forex Trading?
Aggressors are traders who remove liquidity from the market. These traders place buy or sell orders at the current market prices.
When they do this, they are essentially “taking” the prices that are available at the moment. This contrasts with passive traders who place orders at a different price, waiting for the market to come to them.
In forex, aggressors are the ones who place market orders, orders that are executed immediately at the best available price.
For example:
- If an aggressor buys EUR/USD at the current price, they are removing liquidity (available currency to trade) from the market.
- If an aggressor sells EUR/USD at the current price, they are also removing liquidity.
Since aggressors are always taking action, they are also called liquidity takers.
Aggressors and Passive Traders
To understand aggressors better, let’s compare them to passive traders.
Aggressors: Place market orders that execute immediately. They remove liquidity from the market.
Passive traders: Place limit orders and wait for their prices to be met. They add liquidity to the market.
Let’s say you want to buy apples at the market:
- A passive trader is like a seller who sets a price and waits for a buyer.
- An aggressor is like a buyer who walks in and buys apples at whatever price is available.
Hope you understand now, Let’s move on.
How Aggressors Affect the Forex Market
Aggressors play a big role in forex trading because they move the market. Below is how:
1. Price Changes
When an aggressor places a big market order, it can push prices up or down.
- If many traders aggressively buy a currency, the price will go up.
- If many traders aggressively sell, the price will go down.
For example, if a trader places a large order to buy EUR/USD, the demand increases, and the price goes up.
2. Increased Market Volatility
Since aggressors trade instantly, they cause sudden price movements. This creates volatility, which means prices can change quickly.
- High volatility = More trading opportunities but also more risk.
- Low volatility = Fewer opportunities but more stable prices.
3. Impact on the Bid-Ask Spread
In forex, the bid price is what buyers are willing to pay, and the ask price is what sellers are asking for. The difference between these two prices is called the spread.
- When aggressors trade a lot, they widen the spread, making trading more expensive.
- When there are fewer aggressors, the spread is smaller, making trading cheaper.
Strategies Used by Aggressors in Forex
Aggressors are usually active traders who use different strategies to profit from short-term price movements. Some common strategies include:
1. Scalping
Scalpers are aggressors who make many quick trades within a short time, trying to profit from small price changes.
- They enter and exit trades within seconds or minutes.
- They rely on fast execution and small profits per trade.
2. High-Frequency Trading (HFT)
Some large firms use advanced computer programs to execute trades in milliseconds.
- These algorithms detect market trends before human traders can react.
- They place thousands of trades in seconds to make small profits.
3. Momentum Trading
Aggressors who use this strategy trade based on market trends.
- If they see a price moving up fast, they buy before it rises further.
- If they see a price falling quickly, they sell before it drops lower.
Pros of Being an Aggressor
- Their trades happen immediately without waiting.
- They can take advantage of fast price changes.
- Large aggressors can influence prices.
Cons of Being an Aggressor
- Because they pay the spread, trading can be expensive.
- Quick market movements can lead to sudden losses.
- Aggressors must react fast to market changes.
Should You Be an Aggressor in Forex?
Yes, you can be an aggressor depending on your trading style and goals.
If you like fast trades and quick profits, being an aggressor might suit you.
If you prefer waiting for the best price and lower risk, being a passive trader might be better.
Aggressive trading works well for experienced traders who understand market movements and have a strong strategy.
If you are a beginner, it may be safer to start as a passive trader before becoming an aggressor.
Conclusion
Aggressors are traders who place market orders that are executed immediately, removing liquidity from the market.
They play an important role in forex trading by moving prices, increasing volatility, and affecting the bid-ask spread.
While aggressive trading can lead to quick profits, it also comes with risks.
Understanding how aggressors operate can help you make better trading decisions, whether you choose to be an aggressor or a passive trader.