is the forex market central or not?

from tow days an idea jumped to my head

we all know that the forex market is not central but when i think in this fact i found that it's not true

why ??

let's see

the Forex market consist of :

- small player ( us ) and we called retail traders and our percent from the marker volume not exceed 20%

- big players : banks , central bank , financial institutions .....etc
and they are 80% of the market volume

and we the retail traders consist of tow types : first is the type that trade through a market maker brokers and this part trades doesn't reach the real market because your broker is the other side of you trades

second part is the part that trade through an ecn brokers and this part is linked to the real market

let's get to the important point of this thread:

1- why the price go down ?? because the sellers all around the world (big and small) are more than the buyers is that right ???

2- why the price go up ???because the buyers are more than the sellers

3- why at any moment of time the price is the same in all banks and all brokers ( market maker and ecn )

there is only one answer ::

because there is ((( one ))) (((central ))) place that all the orders from all over the world aggregated in it and this place make matching to this orders and the more orders (( either buy or sell )) determine the coming direction of the price


now the question is what is this central place ???


someone will say that this process occur in the liquidity ((pools ))

and i will replay to him :: look at the word pools it not one pool it's pools

and the question is how this pools make matching of orders between them ????

i'm waiting the answer if someone had it

The short answer is, there is no central place.

At the top of the food chain, we have liquidity pools like EBS, Reuters Dealing, Bloomberg FX trading portals, BARX, and other proprietary trading portals by banks like RBS, Citi, and UBS.

There is no need for aggregation or matching of orders in a single place because any arbitrage opportunity found in one pool is quickly nullified in another pool by interbank market players who are able to shop around for the "best price".

Retail traders can't buy from one broker and square that trade with another; their counterparty in all cases is the broker they used.

For example, they can't buy EUR from broker A and sell EUR to broker B, taking delivery of EUR from broker A to deliver to broker B. They still have 2 open positions, one buy and one sell.

In interbank trading, the brokers are just intermediaries between Banks. Unlike retail traders, Banks CAN take delivery and make delivery.

Price will gravitate to equilibrium every few seconds and because the speed of trading nowadays, retail trading prices should match.

Should.

zelenko,

Unfortunately there is no central exchange. Skenobi got it right.

When you talk about all the central banks in the world seeing the same quotes - they aren't. What they are seeing is what other major banks in the world are offering or bidding. There is no central exchange. This is OTC meaning that if one bank doesn't like your quotes, he won't take your offer. No trade happens. There is no CME or NYSE to enforce a delivery of 1000 euros to from bank A to bank B.

But then if there is no central exchange, how do players know what price each other is offfering/bidding at? That is where EBS, Reuters Dealing, Bloomberg FX trading portals, BARX etc come in. They provide a "market place". But they are not an exchange. They simply provide a place where people can hang their price tags. This is the top tier in forex.

Unfortunately for us little guys, most of the time, your matching is done internally. That means your order never ever gets out to the actual market. The "pool" you are talking about for retailers happens within the broker.

Even ECN brokers (for the little guys that is) are the same. Although they simply pass through your orders into the "general market", they still do not end up on the top tier like EBS, Reuters Dealing, Bloomberg FX trading portals, BARX.

What is more likely to happen is that it gets sent to the liquidity provider which is a bank like citibank, jpmorgan etc. That is probably the furthest your retail ECN quote will go to. Ultimately your price is still within an "internal" pool. What will then happen is that the liquidity provider will look at the total quotes they have and deal with the top tier interbank markets.

Make no mistake, the brokers will make your money whether you like it or not. Otherwise they have no reason to be in this business. If you want to be able to put your quotes directly into the top tier, you will have to pay for that priviledge. This will probably be more costly than you can ever make in your first few years of trading.

These two PDF's from the FRB's website are worth a read, they give a good background to how the forex market functions.

I would advise any noob to read the entire document found here. Its an easy read and provides an invaluable insight to how the market is setup and operates.

Thanks to FTI for the original link.

You got that one certainly right, the top ten financial institutions represent eighty per cent of the total volume. That's quite an advantage actually, accumulating many client orders in one hand.

It's not the same, it's same-ish, a few pips difference that tends to disappear rather quickly. Don't misunderestimate the power of 3 pips

..or there is another answer, today's communication lines and the computers on those lines are fast enough to arbitrate any price differences in a flash. Any price differences will be offset before you can blink.

thank you all for helping me

and i will write what i understand

at the top of forex is the liquidity pool that all the big players put thier trade

and every player may chosse one or more liquidity pool to deal with

and this process(( dealing with a liquidity pool )) cost much

and there may be a difference in price between pools but this difference disappear quickly ( one of my friends told me that big institution have something called black boxes and it's a very super computers and it make the arbitrage in no time and it make fore them good money ))

if any one see any thing wrong in the above till

now i have other questions :

from all what you say

does the the ecb for example deals with one or more liquidity pool or it has it's own ???

is the liquidity pools are related to governments or it's a owned by some rich people??

is the number of all the pools around the world i known and specific or it's infinite ??

as an example we all see that the Swiss central bank set the euro/frank to 1.2 to do so does they must be connected to all the pools to oppose any selling trade or it's enough to be connected to one pool ???


and at last i make this thread and this questions not because i want to trade like big players but because i want to see the big players move and playing and games to take the right side at the right time and i was thinking that there is a central electronic place for the Forex

waiting you answers

uppppppppppppppp

Did you read the PDF's?

Maybe you should consider doing some research of your own, rather than relying on us to answer your puerile questions.

i'm sorry if my quistions annoy you

but my english is not so good

so reading the book will take much time

so i try the easy way but if i didnt get answers i will try to read the book

and thank you for you efforts

uppppppppppppppppppppppp