For comparison, let's first look at the market that most people are probably very familiar with, the stock market.
The structure of the exchange is as follows:
The stock market is, of course, very monopolistic. Only one of the specialists controls the price.
All transactions must go through this specialist. This makes it easy to change prices to assist specialists rather than dealers.
How does this happen？
Stock exchanges are forced by professionals to fulfill their clients' orders. Suppose the number of sellers suddenly exceeds the number of buyers. A specialist forced to fulfill a customer's order, in this case the seller, has a stack of inventory that cannot be sold to the buyer.
To prevent this, specialists simply widen spreads or increase transaction costs to prevent sellers from entering the market.
In other words, specialists can manipulate the transactions they provide as needed.
Trading Spot FX is Decentralized
Unlike trading stocks and futures, you don't have to go through a centralized exchange like the New York Stock Exchange for a single price.
There is never a single price for a particular currency in the forex market. That is, the offers from different forex dealers are different.
“So many choices! Awesome!”
This may seem overwhelming at first, but that's why the forex market is so great!
The market is so big and the competition between dealers is so fierce that you can get the best deal almost every time. And tell me who doesn't want it.
Also, one of the great things about Forex trading is that you can do it anywhere. It's like finding a Jordan or a rare handbag.
We want the Air Jordan 4 Retro Eminem Encore 2017 to be brand new, so it's up to you to find the best deal.
The FX Ladder
The Forex market is decentralized but not a mess!
Forex market participants can use the ladder to construct people. Here are some great examples to have better understanding of what we meant.
At the pinnacle of the forex marketplace ladder is the interbank market.
Market participants, made from the world`s biggest banks, these participants of this market trade directly with each other (“bilaterally”) or via voice or digital brokers (eg EBS Market and Reuters Matching).
The competition between EBS and Reuters (now renamed Refinitiv) is similar to the competition between Coca-Cola and Pepsi.
They are constantly competing for their customers and constantly striving to betray each other for market share. Both companies offer most currency pairs, but some are more liquid than others.
For the EBS platform, EUR / USD, USD / JPY, EUR / JPY, EUR / CHF and USD / CHF are more liquid. On the other hand, GBP / USD, EUR / GBP, USD / CAD, AUD / USD and NZD / USD are more fluid on the Reuters platform. All banks in the interbank market can see the exchange rates offered by other banks, but that does not necessarily mean that everyone can trade at those prices.
As in real life, the price relies heavily on the established credit relationships between bidders.
It's like asking your local bank for a loan. The better your credit and reputation, the higher your interest rate and the more loans you can get.
The next step is hedge funds, corporations, retail market participants and retail ECNs.
These institutions do not have a deep credit relationship with the interbank market participant, so they have no choice but to transact through commercial banks.
This means interest rates are slightly higher and more expensive than those who work in the interbank market. Then theres retail traders at the very bottom of the ladder.
In the past, it was very difficult for retail traders to enter the foreign exchange market, but with the development of the Internet, e-commerce, and retail brokerage, all obstacles to foreign exchange trading have been removed.
This gave us an opportunity. To play with those people that are at the top of the ladder with very long and cheap sticks.
Now that you know the structure of the foreign exchange market, let's find out those Forex Market Players!
