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To better explain the principle of the Forex market, compare it with other trading platforms, for example, the stock market or futures. There are mandatory intermediaries who can regulate the price of goods. In this regard, the price may vary, depending on the interests of such an intermediary, and the trader will have to either accept these conditions, or not at all to conclude a deal. All this leads to low liquidity.

In other words, intermediaries can manipulate prices in the stock and futures markets. In contrast, in Forex, traders interact directly with the buyer or seller, choosing the most suitable conditions for themselves. Prices here dictate the market itself, and no other entities can last for a long time to influence them.

Forex market structure

FX spot trading is decentralized

Participants in the forex market do not need to carry out a centralized exchange – a deal between the buyer and the seller at an individually agreed price. In the foreign exchange market, there is no single price that sets for a given currency at a certain time – this means that different brokers offer their own specific conditions for trading each financial instrument separately.

Thanks to the decentralization of the market and high competition among brokers, the customer can always choose the company that offers the most favorable terms for trading. And this distinguishes Forex from other trading platforms:

  • Pricing depends only on the market
  • Lack of intermediaries
  • Healthy competition, which creates a variety of conditions for trade

Stairs FX

Even though the foreign exchange market does not have centralized control and control over the location, it is possible to clearly follow the algorithm of its operation and the composition of the participants. It is logical to present this structure in the form of a ladder:

  1. At the head of all work are the world’s largest banks and some small commercial banks. They accumulate huge financial reserves that are traded on Forex, including depositories of traders, as well as carry out transactions with currency pairs.
  2. Further on the “ladder” are hedge funds, a corporation, retail market makers and retail ECN.

At the very bottom of the ladder are private traders and investors – in short, those who directly enter into transactions. In many ways, it is thanks to this layer that Forex is the most highly liquid market in the world. A huge number of participants provide the opportunity to quickly eliminate transactions with respect to any currencies, as well as provide an exceptional market impact on the price.

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