Difference between stock and FX in terms of liquidity (Noob question)

So in terms of buying and selling stocks and currencies pairs ,when I click buy or sell , who is the second party? I mean where do my sell and buy order go to??

I know this question must have been asked before ,but I don't know how to find similar thread.

Thx.

Is my question not clear?

If I want to sell a losing stock ,who will buy it? Same for FX?

Thx in advance.

You are a retail trader who deals with the wholesaler - your brokerage. The answer for FX is pretty simple - the broker or the dealer your broker refers your account to.

These days on the stock exchange it is not so clear as to whether your broker runs a desk and has inventory on hand to fill your order or whether they pass it through and take a cut. Any answer I give you today would be out of date in a year and sometimes I can't keep up with the latest.

From what I have gathered over time is that the liquidity of forex far far far outweighs stocks so getting filed without to much hassle isnt a problem and getting out is the same.

Who gets your money if you are in a loosing position is irrelevant unless you want to pay them a visit and ask them kindly to give it back. In some cases it may be your broker who has taken an order opposite to yours. Im sure if this was the case a nice phone call may help.

So when you click buy or sell it really shouldnt matter how your order is handled (provided you have a reputable broker). You will either gain loss or come out breakeven. In each case, losses means a stranger gets your coins, winning means you get a strangers coins and breakeven provided you got your spread back means you got nothing but an experience.

Razor

Who is on the other side may be extremely relevant, especially in an exchange-free and regulation-free forex market.

Brb-fraudin is actually asking a very important question. With forex, brokers are usually divided into ECNs (Electronic Communication Networks) and MMs (Market Makers) or retail forex. I personally prefer ECNs because the broker is NOT on the other side of the transaction.

When the broker is on the other side of the transaction, they may charge no visible/explicit commissions, but their fees are built into the bid-ask, which can turn out to be much higher than any fixed commissions. The question is, if you use a retail broker, do you trust them enough that they will not do anything to skew the odds unfairly in their favor? They are already changing the odds by padding the bid-ask, but how much is reasonable and how much is not? It's very hard to monitor and detect. Remember, if you lose, they win, and all the computer equipment and data/information goes through them before they got processed into some new bid-ask and then sent to you... ...do you trust your retail broker? Do you REALLY trust your retail broker?

Someone is always on the other side. That's why it is called a trade.

Obviously.

You can have your broker on the other side of your trades if you like. I prefer not.

Remember, when you use a retail broker, he gets paid when you lose.
He has all the market data and your trade history, including your stops, account size, and your trading habits.
He can also specify at what bid/ask you may place a trade. He can release that bid/ask with delays if he likes.

Most countries have laws regulating stock brokers. Forex trading is, for the most part, unregulated.

ECN brokers do the same exact thing. I find it funny that people think they are somehow better off when an ECN broker sets the market price and the spread and then convinces traders they have an advantage becuse another desk in the same company took the other side. Someone always gets paid when you lose. The trick is to win more than you lose.

Your broker doesn't have time to review how you traded your mini-lot so that he can trade against you.

For the OP's specific question of dumping one trade, there is virtually no difference between ECN and retail.

In general, ECN brokers do not set the market price, because they can't compete against the underlying bank's bid-ask.

However, they can, as you point out, compete in that market. Anyone can compete in the market, including you. OTOH, for a retail broker, they are the market. That's why a synonym for retail brokers is market maker. Try to step in between the bid-ask at a retail broker and most will not allow it, because that's their bread-and-butter.

You can use a retail broker if you want - there are some advantages to them.

However, there is a difference.

Retail brokers don't necessarily get paid when you lose. A lot of brokers will take a small position against you all the while taking a large(r) position with you .... those traders they see are profitable.

Until you are trading a large capital it is really quite irrelevant the difference between costs of commision VS spread. Im not sure how everyone else thinks but to me spreads/commisions are a small part of the business, but then again I dont scalp and usually take a few positions a week and they run. For scalpers I can understand the cost, when you are taking 10+ trades a day (for some it seems like that every minute lol) you reallly need to keep spreads tight because your profits are tight.

If you are a position trader that holds trades for days, weeks or months then you really dont worry too much about the above. IN the end it is a fractional cost in the bigger scheme of things. Also worrying about who is on the other side is irrelevant. If you cannot pull the trigger because you only want to donate your money to another person and not your bad broker who is mirroring your orders then you might as well not trade. Its like going to the casino and not wanting to give your money to the casino.

Brokers are not out to get you, why should they be. The vast majority of people make it easy enough for them to get paid by coming in under capitalised and over leveraged with the mind set that they will be able to make millions. All they have to do is keep advertising how easy it is to turn your little 1K into millions, the greed and lack of knowledge about trading do the rest. Brokers, im sure, carry much the mindset of casinos. They appeal to the publics desire to 'have a punt' and they lure you in. The more people they have in, especially first time punters who have never traded in there lives, the chances that the loosers will outweigh the winners are greater. They only need that small fractional difference over time coupled with there own trading and you have the same recipe that casinos have.

Over the past 4 years I have learnt things the hard way, but I have learnt. This year I got mine back plus some and I am looking forward to the next 12 months which I believe will be a challenge.

Razor

new to forex, does anyone know which of the majors have dealer desks: gft, tradestation, forex.com?

Stocks are exchange-traded, whilst Spot Forex or Currencies are OTC. That is the biggest difference. Period.

All of you have heard of NYSE (New York Stock Exchange) and Nasdaq. Have any of you heard of a Forex Exchange?

For the average retailer, perhaps the only way to get an Exchange for currencies is to do Forex futures on CME.

Stock market:

1. When you enter an order, your broker can decide to fill it with shares which he has on hand or he can forward it to the market. Your order is actually filled.

Forex Market:

1. When you enter an order, your broker is typically the counterparty. He takes the other side of the deal and then (depending on the type of broker), he will immediately forward your position to the market or he will send it to his dealing desk so that traders are able to attempt to get a better price.

Liquidity - there is typically only a few thousand dollars on the bid and ask at any given money on the stock market. The forex market has massive liquidity with 5-20 million sitting on the bid/ask at almost all moments.