How is the Forex Structured?

If you want to execute trades with currencies you should go to the foreign exchange market (also known as forex or FX). It is also qualified as an OTC (over the counter) market.

The forex market is decentralized, meaning that there is no central exchange. Additionally, there is no clearing house where buyers are matched with sellers. Instead the connections between dealers and market makers are done through such means as:

• Computers
• Telephones
• Fax machines

No monopolistic pricing strategies can be applied by market makers thanks to the mere nature of the forex. Since there are many market makers on the forex, traders can quickly move to another one if they are not satisfied with the pricing strategies of the market maker.

Through the close examination of spreads, market makers are deprived of the possibility of changing the costs that are incurred when a trade is made.

In contrast, equity market is centralized, meaning that there is a clearing house where buyers are matched with sellers. Companies that are listed on the particular stock exchange are the only ones that can be traded there. They are operated by so called specialists. In contrast to the equity market, the FX market can have many market makers, who can quote different prices.

In contrast to the decentralized markets where monopolistic strategies are not allowed, in centralized markets such practices are not excluded. This is caused by the fact that there is only one specialist responsible for the monitoring and control of the market. Thus, specialists have the opportunity to distort the prices in different ways in accordance with their own purposes. The distortion of prices can be done by the specialist in the conditions of too many sellers and too few buyers. In such a case, the specialist will have to purchase from these sellers being the only buyer which can lead to a reduction on the value of the security.

The specialist may apply another tactic and widen the spread. This will lead to a barrier to other investors in the trading. Additionally, specialists can adjust the quotes in such a way, so that their investing purposes are met.

To be successful at forex trading you need two main things - the knowledge and the right trading plaftorm. For a trading platform we can recommend you Easy Forex. It offers unique features such as Inside Viewer™, which will give you a unique insight of what other traders are doing, competitive spreads, 24/7 support, etc. Start trading from as little as $25.

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