FOREX MARKET ORGANIZATION

The Forex market is incredibly close to being a textbook example of the perfect market that humanity has ever created. Any place where buyers and sellers exchange goods and services is referred to as a market. Perfect competition can be achieved when there are many buyers and sellers, and they are all aware of who is providing the best pricing. Take into account having the ability to purchase the pizza of your choice at the greatest price and have it delivered in a matter of seconds. The forex trading market is capable of achieving that, despite the fact that all it does is facilitate currency exchange.

Centralized Market

When there is only one seller, whether it be a bank or a pizzeria, they can set the price as they see fit and even manipulate it whenever they want. The markets in question are centralized. A centralized market is obviously bad for you unless you are in charge of making decisions. The good news is that the FX market is now decentralized, so let's take a closer look at this vibrant market's structure.

Participating Forex Traders - Decentralized Market Structure

With the development of technology, the structure of the Forex market changed, making it even more effective today. Since the Spot Forex market is decentralized, no one entity or central authority is in charge of it. The price you see when trading is the retail price, which is determined by matching your request to buy or sell with the best price provided in the liquidity pool, despite the fact that quotes from various currency dealers fluctuate.

The Interbank Market

Banks are looking for somebody who can handle the massive amounts of foreign exchange that they must deal with. Naturally, that's where other banks step in. This makes up the interbank market layer of the currency market structure, which is at the top of the ladder. Players in this stratum can communicate with one another verbally or electronically using brokers like Reuters Matching and EBS (Electronic Brokering Services). These brokers fiercely compete with one another in order to offer the greatest prices, which are only feasible when you are connected to a higher number of potential clients. Rates improve as there is more liquidity created by more parties. As a result, some brokers provide more liquid currency pairs than others.

Market Institutional

The hedge funds, retail market maker brokers, ECN brokers, and other financial institutions that can't establish credit agreements with the major banks must deal with commercial banks are on the next rung of the ladder, below the interbank market. Between the interbank market and retail traders, this creates the bridge in the forex market system. The prices offered here are slightly higher and more expensive than the interbank rates, but they are still better than those for retail dealers.

Consumer Market

The lowest bottom of the hierarchy are the retail dealers. Retail traders are now able to trade currency pairs with ease thanks to electronic trading, retail brokers, and the internet, which formerly prevented them from doing so. Large reputable brokers may offer spreads and circumstances that give the impression that retail traders are on level with the major banks in the competition for clients made possible by technology, even though they are not always receiving the best pricing when compared to the interbank markets. AvaTrade spreads, in contrast, could be as little as 0.01%.