Forex Market Structure Hierarchy - Different Market Players

Forex Market Structure

Trading Forex is good because its decentralized.

 

Unlike trading stocks or futures, you do not need a centralized exchange.

 

How Forex Market Structure Benefits Traders

In the Forex market, there is no single price for a currency at any time of the day. This means quotes from different currency dealers vary from time to time.

You have a huge amount of brokers that all offer various prices. This means brokers will mostly be competitive and cause prices to be the best for trading.

It may be strange that no one central place is the home of Forex but being decentralized as a market is what creates the biggest market. It very well cuts out much manipulation. Watch the video below about different market structures.

 

 

More Reasons A Decentralized Forex Market Structure Is Great

 

The market is so huge and the competition between dealers is so fierce that you get the best deals. Forex trading is so great & in such high demand, you can do it anywhere in the world and through many platforms.

  • Phones 
     
  • Laptops
     
  • Pretty much all modern forms of gadgetry provide applications in which you can trade Forex.
     

Different Powers in the Forex Market Structure

 

Even though the Forex market is decentralized, there is still some sort of hierarchy. At the top of the Forex market is the interbank market (all mentioned in above video). This is a group of the largest banks over the whole world and some smaller banks.

These participants’ trade directly with one another or through EBS (Electronic Brokering Services) or Reuters Dealing 3000.

Next in line are

  1. Hedge funds 
     
  2. Corporations
     
  3. Retail market makers
     
  4. And retail ECNs.

 

These institutions do not have tight credit relationships with the participants of the interbank market, therefore they have to do their transactions via commercial banks. This means that their rates are slightly higher and more expensive than those who are part of the interbank market as you would expect.

Last in line are retail traders (like you and me). It used to be very hard for most people to engage in Forex.

Since the emergence of the internet, electronic trading, and retail brokers, the difficult barriers to enter Forex have been taken down. This gives them the chance to play with those higher up in the Forex market structure.

If you want to learn more about Forex trading, download your free Forex tool kit.