Structure of the Forex Market.
Foreign currency trading, also known as forex, is often regarded as the most profitable financial market. One factor that is indicative of this is that the forex market’s daily liquidity reached USD5.3 trillion in 2013 alone. Yields are certainly better compared to other financial markets with lower liquidity such as stocks. In addition to the many potential profits, investing in the forex market also has the advantage of the lack of capital and the flexibility to trade anywhere, anytime. However
Forex Market Structure
Basically, the forex market is a decentralized global market, where all currency traded, and as trader getting an opportunity. Make profit from difference price movement.
The perpetrators of buying and selling in this market include various groups, including the Government, Banks and Financial Institutions, Multinational Companies, Speculators, Brokers, and forex traders from among the common people.
However, even if all forex traders do not have the ability to determine prices, not all actors are equal. Why is that? This is because the structure of the forex market is not centralized, unlike the centralized stock market. If described, the structure of the stock market is as follows.
As shown in the picture, stock trading is centralized. That is, all seller and buyer activities are centred on the stock exchange (Stock Exchange). Companies as stock issuers and investors as buyers were met by the exchange.
Although today’s stock trading has been done online, the system is still centralized on the stock exchange. However, forex trading does not have such a centre and takes place outside the exchange (over-the-counter / OTC).
Look how each forex market participant deals directly with one another or through brokers and banks, without the exchange of certain exchanges.
At glance structure of the forex market that is not centralized seems to be dishevelled. But actually, the forex trading players can be described in certain hierarchies.
Forex Market Hierarchy
The top box in the forex market hierarchy is occupied by networks formed by major bank transactions, called interbank. Major banks are for example Citi, JP Morgan Chase, UBS, Deutsche Bank, Goldman Sachs, Barclays, HSBC, Morgan Stanley, and so on.
The Interbank network consists of world central banks, major banks, and several smaller banks. They all trade directly with each other or electronically via Electronic Brokering Services (EBS) or Reuters 3000-Spot Matching Dealing.
After going through several institutions such as retail market maker brokers, ECN retail brokers, and Hedge Funds, then the lowest are retail traders like us.
Retail traders like us seem to be grateful for the internet, trading platform technology. And retail broker because they giving the advantage to start trading with small capital
If we look structure of forex market indeed look like very messy, but however forex market is the biggest market that giving a big opportunity to making money through forex trading, small trader like as retail trader now can take part in the forex market and become one structure forex market participant.