Commander in Pips: Looks like exchange traded markets is more attractive for you, eh. Well, It’s not as chaotic as it seems, because, as we’ve just talked about, there is a hierarchy that exists among the participants. The scheme above just shows you that FOREX does not have an absolute center like an exchange. But to become absolutely clear for you, let’s make another picture: Pipruit: That’s much better, thanks. But some positions I do not understand still. What are ECN and also the black rectangle – Reuters dealing trading platform or electronic brokering services? Commander in Pips: ECN - Electronic Communication Network. This is a type of electronic system that facilitates trading of financial products. In fact, ECN is a kind of electronic server that matches contra-side orders of participants/subscribers (i.e. a sell-order is "contra-side" to a buy-order with the same price and share count) for execution. The ECN will post unmatched orders on the system for other subscribers to view. Generally, the buyer and seller are anonymous, with the trade execution reports listing the ECN as the counter party. In fact, this is a small private exchange that has a bit different and separate regulation rules by the law in most cases. To trade with an ECN, one must be a subscriber or have an account with a broker that provides direct access to trading with a particular ECN. The most well-known ECN is NASDAQ. An example of a FOREX ECN is accounts that use Currenex. As for the Reuters Dealing Trading Platform or its rival Electronic Brokering Services (EBS) – this is just software that allows you to make trades on Over-the-counter markets. Counterparties can see orders of each other, put in their own orders and make deals. All participants of this software have to sign a typical agreement that is regulated trade rules via this trading terminal. Another example of such a terminal that is also ECN, by the way, is a Bloomberg Tradebook. Pipruit: Can I also trade via Reuters Dealing or Bloomberg? Commander in Pips: Well, you can if you’re ready to pay about 3000$ per month for using this software… But for you there will be no sense to do that. Understand that participants of this trading software are large, medium-sized and may even be some small banks. You can imagine the value of a single trade. Second, these banks do not just trade with each other. Risk-management has forced them to establish limits on each other depending on credit quality, i.e. credit rating. The higher the rating of the bank – the greater credit limit bank can get from a counterparty bank, i.e. the greater volume of currency the bank can trade in every trade. In fact, this is the Interbank market. Other participants take part in it via different kind of middlemen, such as FX retail brokers, Retail ECN that, nevertheless still leads to small banks. Many ECN brokers link to some large bank. For example, Matchbook FX – a well-known ECN that had as members such banks as Citibank, Goldman Sachs, UBS and others. P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon. Note: FPA ranks are earned in the battles against scam, not in the classroom.