Hi, can someone explain this to me ? ECNs are part of the interbank, right? That's, I see actual quotes from banks and other traders etc., though the liquidity I see will be limited to the amount the participating bank selects to display to the particular broker I am with.
Let's say there is 100 million provided over 10 pips on an ECN. I put a 100 mio market order in and consume that liquidity, moving up the offer 10 pips. Let's assume for argument's sake the bid follows match, maybe because people think that it's a genuine move, therefore we get a disperse bid/ask 10 pips greater than it was. I have moved price 10 pips greater. Who sees this greater price? The people/banks who get my broker's feed. Now it's my understanding that, as there's no central market or market maker, the price the numerous banks and market makers etc are bidding or supplying is kept pretty much the same as every other through arbitrage.
So what would happen to the currently from whack feed that my broker is displaying? Can it immediately get arbitraged away by progr/people selling into the new high bid and buying in the current normal (low) offer and wait for the prices to line up again (this is my understanding of arbitrage - I am not clued up on it so may be incorrect )? Or would banks see the large price and begin increasing their bids/offers, thinking they're offering since it's gone high somewhere else? Or would they somehow know that price is wrong and only short it if they can?
Basically I am trying to understand how large buying from one or a couple of banks would raise the price for everyone. I am not sure this clarifies it although I get the potato effect.
Thanks.