The Structure of the Forex Market
You want to examine what the stock market is all about, and in order to compare it to the Forex market, you need to figure out what the stock market actually looks like or how it is ran.
Buyers > Highest Person (Controller) < Sellers
The stock market is a monopolistic place to be in, and there is actually only one entity. This is one specialist who controls all of the prices, which is the middle person in the graph above. All of the trades made in the area have to go through this one person. These prices can then be altered to benefit the specialist in the position and actually hurt the traders in the end. This is something that almost always happens.
The specialist in this position is forced to fulfill all of the orders that come from the clients. If the number of sellers was more than the number of buyers, then the specialist, who is forced to fulfill the client’s needs, has to leave a bunch of stock to the sellers that he cannot sell off to the buyers that are in this trade. If you want to prevent the specialist from doing this, then the specialist can simply widen the spread that everyone is using or even increase the cost of transaction to prevent any of the sellers in the market from entering this specific trade. This actually allows the specialist to manipulate the quotes and the figures to fit everyone’s tastes, if they so choose to do so.
Decentralized the Trading Spot for Forex
You do not actually need to go through a centralized exchange like the Stock Exchange in New York using just one flat price each time. In the Forex field of the market, there is nothing stating that there is a single price for any given currency at any time. This allows you to have the idea that quotes differ from dealers and prices will vary from day to day.
This is something that many people find a lot to handle since there are many different components within the graph. This is what makes the Forex market what it is, however. This is because you want the largeness of the market each time you trade for the competition, that the dealers put off, giving you the best deal that you can get each time. You are able to do Forex trading wherever you would like, which means no crazy loud stock market to run to every day. It is done just like if you were to trade cards of a favorite sport.
Learning More about the Forex Ladder
The Forex market is a decentralized area, and the people in the market can be categorized through a series of ladders. You can find out for yourself where each person and company fits on the ladders below:
The top of the market ladder in the Forex industry is the interbank market. This is one of the largest banks in the world and also includes the smaller banks who participate with the larger bank. They also trade directly to and from each other, and electronically through EBS systems. They can also use the Reuters Dealing 3000 Spot matching to do the job, and do it right.
The competition between the EBS and Reuters Dealing 3000 Spot Matching is tough and tight. They each want to make it out the best, yet the competition is tough. They are always battling over clients and want the higher of the market share in the end. They both offer a number of currency pairs, although some of the currency pairs are more liquid than the others that they offer. In the EBS system, EUR/USD, USD/JPY, EUR/JPY, USD/CHF, and EUR/CHF are more liquid than any others. For the Reuters system that is used, it is a bit different coming in as GBP/USD, EUR/GBP, USD/CAD, NZD/USD, and AUD/USD are the more liquid of the group.
All of the banks that are within this group at the interbank market can see each of the rates that are offered, yet not all of them can make deals on the prices at hand. The credit relationship between the two parties is dependent on the rates and vice versa. The better the credit standing, the better the reputation with them and you will have the better interest rates with the largest loan that you can get.
The hedge funds, retail market makers, and corporations of retail ECNs in the ladder. Since these institutions do not have a tight credit ratings and relationships with the participants of the interbank market. These markets have a higher transaction via commercial banks. Their rates are slightly higher than the people in the interbank market and can be more expensive in the end.
The bottom of the ladder holds the retail traders of the market. These people are at the bottom because it is very hard for them to engage in the market. Now that times have changed however, the internet allows the little people to trade and enter the Forex trading barrier that once stopped them.