Professional Documents
Culture Documents
By its very nature, the stock market tends to be very monopolistic. There is
only one entity, one specialist that controls prices.
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All trades must go through this specialist. Because of this, prices can easily
be altered to benefit the specialist and not traders.
In the stock market, the specialist is forced to fulfill the order of its clients.
Now, let’s say the number of sellers suddenly exceeds the number of
buyers.
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The specialist, which is forced to fulfill the order of its clients, the sellers, in
this case, is left with a bunch of stock that he cannot sell off to the buyer
side.
In order to prevent this from happening, the specialist will simply widen the
spread or increase the transaction cost to prevent sellers from entering the
market.
In the forex market, there is no single price for a given currency at any time,
which means quotes from different currency dealers vary.
“So many choices! Awesome!”
This might be overwhelming at first, but this is what makes the forex market
so freakin’ awesome!
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Also, one cool thing about forex trading is that you can do it anywhere. It’s
just like trading Jordans or rare handbags.
You want that mint condition Air Jordan 4 Retro Eminem Encore 2017, so
it is up to you to find the best deal out there.
The FX Ladder
Even though the forex market is decentralized, it isn’t pure and utter chaos!
Composed of the largest banks in the world, the participants of this market
trade directly with each other (“bilaterally”) or through voice or electronic
brokers (such as EBS Market and Reuters Matching).
The competition between the two companies, EBS and Reuters (now
rebranded as Refinitiv), is similar to Coke and Pepsi.
They are in a constant battle for clients and continually try to oneup each
other for market share. While both companies offer most currency pairs,
some currency pairs are more liquid on one than the other.
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For the EBS platform, EUR/USD, USD/JPY, EUR/JPY, EUR/CHF, and
USD/CHF are more liquid.
All the banks that are part of the interbank market can see the rates that
each other is offering, but this doesn’t necessarily mean that anyone can
make deals at those prices.
Like in real life, the rates will be largely dependent on the established
CREDIT relationship between the trading parties.
It’s like asking for a loan at your local bank. The better your credit standing
and reputation with them, the better the interest rates and the larger loan
you can get.
Next on the ladder are the hedge funds, corporations, retail market makers,
and retail ECNs.
Since these institutions do not have tight credit relationships with the
participants of the interbank market, 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.
This gave us the chance to play with those high up the ladder and poke
them with a very long and cheap stick.
Now that you know the forex market structure, let’s get to know them forex
market playaz!
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