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Because trading in the forex market does not occur in any one particular location, the forex is considered a decentralized market. Trading information is kept among the participants instead of recorded and published such as in a centralized market.
Banks, large financial institutions and their clients, which consist of the largest global corporations, are responsible for a large part of dealings in the forex, which is why the market where these transactions occur is called the interbank market.
Trading through an online forex broker gives individual traders the opportunity to trade with the big players of the forex market, the banks. Most foreign exchange brokers will often offset their own currency positions with banks and other major forex market makers.
The principal difference between interbank trading and trading through an online forex broker consists in the size of the transactions — which can run in the billions in the interbank market — and how trades are funded and get executed. Banks and market makers on the interbank market represent more than 70 percent of all foreign exchange volume by some estimates, and are held to clearly established rules and defined lines of credit among themselves before they are allowed to trade.
Nevertheless, a trader using an online trading account would do well to learn how the interbank market works to understand how prices are determined and how spreads get priced in the online forex market. Trading on the interbank market has traditionally been by large financial institutions or banks. These institutions will generally have a sales desk, where their corporate clients can enquire about markets and place orders, and a dealing desk, where the orders are routed and offset in the market.
The bank will generally have one or two traders for each major currency on the dealing desk, to ensure that each trader can focus completely on their currency and market. Other traders will specialize in forwards, crosses and exotic currencies. A number of factors will determine how a bank prices currencies. For example, if they favor a currency, the bank will often adjust their markets upward to accommodate accumulation.
If the bank is a better seller, they will generally make their markets lower as they lean on the offer side of the bid offer spread. Once the bank has established a trading position, the bank can either hold the position or offset the position immediately using direct lines to other market makers or electronic systems like either the Reuters Dealing system or the Electronic Brokerage Service or EBS.
Both services are proprietary trading systems specifically designed for the Interbank forex market. Trading in an online trading account does not access the Interbank market directly. Nevertheless, the more credit lines established by your forex broker, the tighter the spreads they can offer their customers.
Stay up to date with the financial markets everywhere you go. Online Trading and the Interbank Trading through an online forex broker gives individual traders the opportunity to trade with the big players of the forex market, the banks.
The Dealing and Sales Desk Trading on the interbank market has traditionally been by large financial institutions or banks. Comments 0 comment s Click here to cancel reply. Get the most recent news at your inbox Stay up to date with the financial markets everywhere you go. Sign up for updates. View ICO See whitepaper. Ethereum Analysis - USD defended but Is Groestlcoin GRS really the 'all-in-one' cryptocurrency?
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