Understanding The Anatomy Of Forex Market https://www.brokerxplorer.

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U nd e r st a nd i ng T h e A n a to m y Of Fo re x M a r ke t
HHOOM
MEE // AARRTTIICCLLEE // TTRRAADDIINNGG BBAASSIICCSS

BByy AAiisshhaa AAm

maajjiiddaa
 Jan 29 2015    1057    

Before starting a certain business, someone should �rst get to know the market in which he will participate in. By understanding the
market, he will know how prices, supply, and demands happen and changes all the time. The same is true in forex trading. Someone
who want to start forex trading should �rst get to know the anatomy of the forex market.

Before starting a certain business, someone should �rst get to know the market in which he will participate in. By understanding the
market, he will know how prices, supply, and demands happen and changes all the time. The same is true in forex trading. Someone who
want to start forex trading should �rst get to know the anatomy of the forex market.

One thing that is often said about forex trading is that it is done over-the-counter. Unlike stocks and bonds which have to be traded
through an exchange, forex trading could happen without a central exchange. So, where do transactions occur? it is in a huge network in
which various entities buy and sell currencies continually between each other.

When we talk about forex market it does not refer to a certain building somewhere in which brokers buy and sell according to our
instructions. Rather than the usual market, forex market resembles a worldwide web consists of central banks, big banks, institutional
investors, retail traders, etc. None of those players have the power to determine an exact value for an asset, as exchange rate is
determined through the power of supply and demand in the market, but there are di�erences of bargaining power between them.

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1 . C e n t ra l B a n k s  DDeem
moo AAccccoouunntt
GGuuiiddee
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In the �rst place is the Central Banks. Each country has their own central bank that function as banker's bank as well as monetary
authority. In that sense, central banks usually has the authority to print money, retract money, and do other measures or interventions in
order to stabilize the country's monetary and economy condition. This makes central banks to be one of the key players in the forex
market. Because of this reason too, central bank policies commonly a�ect the value of their currency's exchange rate.

Leading central banks that control major currencies particularly hold huge in�uence in the forex market, including US Federal Reserve, UK
Bank of England, European Central Bank, Swiss National Bank, Bank of Japan, Reserve Bank of Australia, Reserve Bank of New Zealand,
and Bank of Canada. However, other central banks are also main players in the forex market and may intervene in the currencies they
relate to.

2 . Fo re x D e a l e r s
Forex dealers are global banks that collectively make up the interbank market.  They trade forex in a ridiculously huge amount of money
each day among each other through Electronic Brokering Services (EBS) or Reuters Dealing 3000-Spot Matching, and also became the hub
through which their clients can gain access to the forex market. Major banks which also doubled as forex dealers including: Deutsche
Bank, UBS, Citigroup, Barclays Capital, RBS, Goldman Sachs, HSBC, Bank of America, JP Morgan, Credit Suisse and Morgan Stanley. These
forex dealers are the ones that often called as market makers of the forex market as they have the power to determine prices and control
liquidity in the market for the rest of the market. 

3. Banks
The next group of players are ordinary commercial banks that includes your usual brand of banks, excluding the aforementioned forex
dealers. These banks can access interbank market where pricings can be accessed through Electronic Brokering Services (EBS) or Reuters
Dealing 3000-Spot Matching. They buy and sell currencies for themselves and their clients, also connect the next group of players to price
quotes and liquidity.

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4. Other Financial Institutions

Financial institutions like hedge funds, big companies, and brokerages are the ones who make up major orders to the commercial banks.
They don't have direct connection to the interbank market, but they may have big funds to back them up. The big funds mean that they
have considerable pull in the forex market, but are in�nitely smaller in scale compared to the market maker banks or governments.

Forex brokerages that facilitate retail forex traders can be a part of this group as well, or the previous one, depending on the way they do
their business. Therefore, it also need to be noted that prices on the trading platforms provided by forex brokers are not generated by
itself, but derived from the interbank market through platforms developed and maintained by the forex dealers.

5 . R e t a i l F o r e x Tr a d e r s
The advance of technology means that ordinary people can now trade forex online. Nowadays, there might be millions of traders out
there, a huge number that de�nitely beat the previous groups. Even so, separately and cumulatively they have very small power in the
forex market. They can take advantage of price changes in the market, but they can not push to change prices according to their will. 
Hence, they are often called as speculators or simply market user.

See where forex traders are in the forex market? That is how small we are compared to the bigger players. The other players have no
power to determine price with exact precision, but they have became superior as they place higher in the ladder and have bigger power
in buying and selling. For them, the cost of transactions are smaller, the time lags between order and execution are near zero, and the
amount of funds they control are huge. Because of this, we may not be so arrogant as to think that retail traders can control the market.
This is also the reason why understanding market sentiments are considered very important in some quarters, and explain how mere
economic estimates can hold considerable in�uence in the market.

AAiisshhaa AAm
maajjiiddaa
Aisha has been working with forex industry since 2008. Currently active as independent trader and educator in �nancial
trading and investment.

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Forex is a high-risk trading instrument which is not suited for all traders and investors.
Before deciding to trade Forex or any other �nancial instrument, you should carefully consider your investment objectives, level of
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