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Chapter 3, Part I. The structure of the FOREX market. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 14, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Pipruit: And what should I do then, what if a bad broker tries to deceive me and gives me unrealistic quotes for trading?​

    Commander in Pips: Don’t panic, son. It’s not so awful like you imagine. The point is that for the most part, brokers who work with individuals, do not make any real currency settlements. Usually they are linked with some bank or bigger broker, who in turn links with a bank. Your broker just transfers FOREX quotes of this bank to individual clients. There are some algorithms for hedging total client positions that exist for brokers, but for simplicity we’ll say that all transactions of individuals are transferred by the broker to the bank. It appears that the broker is just an intermediate part in the chain, just a retailer. The small banks, in turn, are linked with bigger ones and also can be linked among themselves. Big international banks are linked with each other and with Central Banks. National Central Banks are linked with each other also. When I say “linked”, this means that they have some electronic connections and legal agreements for regulating FOREX transactions amongst themselves. For example, banking activity on FOREX is regulated by national and international law and also two-sided Interbank agreements. Central Bank activity is also regulated by international law and so on. And, as you understand, each part in the chain deals with different tasks. National Central Banks track the overall national currency rate; make transactions in huge volumes with other Central Banks with real settlements. They make payments due to large international contracts and make transactions with big private banks. Big private banks make transactions on FOREX due to contracts with big national companies and other clients (which can also include FOREX brokers), smaller banks do the same, but clients are also smaller. Both small and big banks as a rule have departments who work on FOREX with individuals who have enough trading assets to qualify.
     
    #1 Sive Morten, Dec 14, 2013
    Lasted edited by : Feb 6, 2016
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