Who Trades Forex?

Who Trades Forex? Lesson No 22

Everyone is involved in the currency market, from local money exchangers to huge institutions, from clever hedge fund managers to everyday people like Uncle Pete! It’s a global money celebration to which everyone is invited.

Forex Market Structure

Let’s now examine the stock market, a market with which we are all familiar.

Consider this, the stock market has a type of boss, a major actor who controls everything. It’s like a boss is in charge of determining the prices, and every trade must pass through them. The difficulty is that this boss can easily modify prices to benefit themselves rather than the traders.

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Are you wondering how? In the stock market, this supervisor must follow the instructions of their clients, the sellers. But imagine if there are suddenly more sellers than buyers. Now the boss, who has to listen to the sellers, is stuck with a bundle of stocks that can’t be sold to purchasers.

To avoid this situation the boss uses an undercover strategy.They either increase the gap between buying and selling prices or charge extra every trade. Sellers find it challenging to enter the market as a result.

Simply put, the boss of the stock market can adjust the pricing they offer to fit their own needs.

Trading Spot FX is Decentralised

Now, trading in the forex market differs from dealing with stocks or futures, where you are limited to a single exchange, such as the New York Stock Exchange, and its fixed prices.

In the forex market, there is no single fixed price for a currency at any given time. You have a range of possibilities because different currency traders supply different quotes.

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This is incredible, is it not? It may appear difficult at first, but believe me, this is what makes the FX market so interesting! It’s similar to a large marketplace where dealers are highly competitive, which is wonderful news for you because it means you almost always receive the best offer.

And here’s the best part, forex trading does not require you to be physically present. It’s like searching for the ideal pair of Air Jordan 4 Retro Eminem Encore 2017. You want the best deal, and it is up to you to locate it, regardless of where you are. 

The FX Ladder

Now, just because the forex market is distributed doesn’t mean it’s a crazy, uncontrolled disaster. It’s actually very organised, like a ladder with different players on each level. Allow me to break it down for you:

The interbank market sits at the very top of the FX hierarchy. It is where the world’s largest banks trade directly or through brokers such as EBS Market and Reuters Matching.

Consider EBS and Reuters to be the Coke and Pepsi of the forex business, constantly fighting for clients and trying to outperform one another. They offer the majority of currency pairs, however some are more popular on one platform than others. For example, EBS reigns supreme over EUR/USD and USD/JPY, whereas Reuters dominates GBP/USD and other pairs.

But here’s the catch,just because these banks can see each other’s rates doesn’t guarantee they are able to bargain at those pricing. It’s similar to borrowing money from a local bank. Your credit relationship with them influences the rates you receive, stronger credit, better rates.

Moving down the ranks, we have investment firms, corporations, retail market makers, and retail ECNs. Because they do not have tight credit ties with the big banks, they must conduct their transactions through commercial banks, which raises their rates slightly.

And at the bottom of the scale are the everyday people, you and me, retail traders. It used to be difficult for us to break into the forex market, but owing to the internet, computerised trading, and retail brokers, the walls have broken. We can now compete with the major guys and push them with our long, affordable sticks.

Now that you have the lowdown on the forex market structure, let’s go into the entire world.