Who trades forex

Hello again, lets return to…

Who trades forex!! Well let me explain them to you and demystify this forex market more, because you’ve got to know who your playing against or with if your ever going to win right.

The forex market is a decentralized market that is not controlled by a single entity, like the stock market NYSE that determines the price of all stocks in that market, here various entities, banks and traders determine the price and it is there trades that determine the price to for the various currency pairs. In the forex market there is no single price for any particular forex currency pair so this means the quotes from various currency dealers will always vary.

This might seem very hard to understand at first but this is what makes the currency market so damn amazing. This decentralization means there is so much competition between various currency brokers so the try and give you the lowest spreads meaning you get the best deals all the time. I think that is the single greatest advantage of forex over other financial markets.

Another thing to highlight is you can trade forex just about anywhere meaning its up to you to find the best deal you can. You aren’t restricted by location so you can trade with any broker in any country that you think has the best deal. compare this to the stock market where its only the stock exchange of that country that determines prices for stocks in that whole country so you have to trade by there rules or not trade at all.

The forex hierarchy

Even though its completely decentralized this doesn’t mean complete entropy in the market. The participants can be categories into a forex ladder. It starts from

  1. The major banks
  2. Electronic brokering services (EBS)/ Reuters Dealing 3000-spot matching
  3. Medium-sized and small banks
  4. Retail market makers/ retail ECNs/ hedge funds and commercial companies
  5. Retail traders

At the very highest of the forex hierarchy is the interbank market.  This is the largest banks in the world and some smaller banks. The trade with each other directly through the Electronic brokering services and the Reuters dealing 3000-spot matching.  The two companies are in constant competition with the other meaning better deals

Next are the hedge funds, corporations, retail market makers/ retail ECNs this do not have as tight credit relationships as the interbank market so they trade though commercial banks. This means there rates are slightly higher.

At the bottom are the retail traders (you and me) thanks to the internet, electronic trading and retail brokers.




Leave A Response

* Denotes Required Field