First, let us compare a market analysis that you are familiar: market securities . Below is the structure of securities markets account :
Market securities tend to be exclusive. Only an entity, an expert price controls. All transactions must be through experts. Thus, the costs can easily be changed to benefit the professionals, not the investors.
This is done how?
In market securities , the experts must complete the requirements of the customers order. Now, consider that the number of sellers suddenly exceed the number of buyers. The experts will not be able to sell all of the shares to the buyer in this case.
To prevent, experts will increase the cost transactions or to limit the spread sellers participate in the market. In other words, the expert manipulation may at its sole discretion.
Trading Spot Forex is decentralized.
Unlike market securities or futures, you do not need to go through one central switch (such as basis trading securities New York) with only 1 price. In the forex market, there is no single price for a currency pair at any given time, each exchange transaction or a different broker will have one price matching different transactions.
This may make you feel confused at first, but this is what makes the Forex market becomes great. The market is too large and the competition between suppliers so strong that you can find the best one agreement at any time. Did not you look forward to that?
In addition, one of the more amazing thing is Forex trading you may conduct transactions in anywhere.
FX ladder
Although the foreign exchange market is a decentralized market, but it is not completely chaotic. Participants in the Forex market is arranged in an order. To better understand, here is illustrative:
In the first position of the ladder as interbank network (Interbank), including the biggest banks in the world and a number of smaller banks, market participants traded directly with each other or communicate electronically via e-brokerage services (brokering Electronic Services) or Reuters Dealing 3000 Spot Matching.
The competition between the EBS and Reuters Dealing 3000 billion- Spot Matching - between Coke and Pepsi like. They are in a constant battle to attract customers and continuously upgrading its services to share. Both 2 will provide most of the currency pairs, a few pairs of this company liquidity account better in the other company.
For EBS, the EUR / USD, USD / JPY, EUR / JPY, EUR / CHF bars account better by Reuters, while for Reuters, GBP / USD, EUD / GBP, USD / CAD, AUD / USD , NZD / USD, the payment terms better than EBS.
All banks, which is a small part of the interbank market, can see different rates does not mean that anyone can trade at that price. Rate mainly depends on the credit relationship is the setting of the transaction,
The next level is hedging funds, the whole set market makers, the individual ECN. Since these organizations do not have a credit relationship with the thamg tight inter-bank market, they must carry out transactions through commercial banks. This means that their rate is higher than the members of the interbank market.
Bottom of the scale is the retail investor. Supposed small investors are unlikely to participate in the forex market, but thank the benefits of the internet, electronic transactions, and brokers, difficult hurdle to progress to forex trading removed. This gives us the opportunity to sit at the table playing with the world's major organizations.