Why Forex/FX has remained decentralized?
- Thread starter sofiafx
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Pharaoh
Brigadier General
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A central exchange would have some major benefits. The issues are that forex is world-wide and central banks like to do interventions. What organization or country could be trusted by all countries and brokers worldwide to run a central currency exchange?
Forex Rainmaker
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I can't say why this market stays decentralized for certain, but its size and lack of geographical boundaries must be defining factors as to why it has remained this way. It is my understanding that the very fact it is not centralized is what makes this market so great from a traders perspective, in the sense that it is as close to a "fair market" as there can be, as traders are the ones who determine what the market value of any given currency is.
This of course not withstanding interventions by central banks as Pharaoh has mentioned, but even these interventions need to be supported by traders or they are short lived. Take for example the Yen weakness which occurred 2012/2013. This intervention had been talked about for sometime and the fact that BOJ was talking, in turn had traders talking and overall market sentiment moved to weaken the yen and trend traders have had a heyday.
In my opinion, lets keep it decentralized.
This of course not withstanding interventions by central banks as Pharaoh has mentioned, but even these interventions need to be supported by traders or they are short lived. Take for example the Yen weakness which occurred 2012/2013. This intervention had been talked about for sometime and the fact that BOJ was talking, in turn had traders talking and overall market sentiment moved to weaken the yen and trend traders have had a heyday.
In my opinion, lets keep it decentralized.
While on the surface FX suggests a more competitive model because participants quote different prices on the same pair it is also opened to abuse. This is especially true in the online forex retail space which has taken a tow on the image of this niche. I was wondering if Retail Forex Brokers can help the image of the industry by getting together and establish a small exchange system. This exchange does not have to include big banks and institutions, but at least it can help Retail FX Brokerages gain some credibility among small investors/traders. In essence, this exchange will receive liquidity from the usual places, but it will output prices that will be used by all members of the exchange (fx brokers) and unify the prices across these brokers. I think this will remove doubts by fx traders that their retail brokers are playing against them and no broker will be able to change and manipulate the prices. Will that be beneficial and more importantly, will it polish the image of the fx retail industry?
Pharaoh
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It would be interesting if a group of major LPs would create a central exchange amongst themselves. If they proved reliable and trustworthy, and if they would support traders by providing tic charts in the event of disputes with member brokers, then brokers advertising that they use the exchange as their LP would have an advantage gaining the trust of potential clients.
UncleSteve
Corporal
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How about LPs stream their prices to a HUB, the HUB produces an average or best price and streams to all forex brokers who in turn stream that price to their clients?
Example: LP1>EURUSD 1.3409/1.3412, LP2> EURUSD 1.3407/1.3410 etc. These prices fed into the HUB which converts them to best bid/ask resulting in EURUSD 1.3409/1.3410 and feeding that price for EURUSD to ALL brokers. Each broker in turn will quote 1.3409/1.3410 to their clients. Traders will know all brokers offer the same price and if there is deviation then that Broker is trying to scr*w you
You can got the HUB and check the prices to make sure they are the same. It can resolve slippages and stop hunting practices. Would that be a good thing?
Example: LP1>EURUSD 1.3409/1.3412, LP2> EURUSD 1.3407/1.3410 etc. These prices fed into the HUB which converts them to best bid/ask resulting in EURUSD 1.3409/1.3410 and feeding that price for EURUSD to ALL brokers. Each broker in turn will quote 1.3409/1.3410 to their clients. Traders will know all brokers offer the same price and if there is deviation then that Broker is trying to scr*w you
You can got the HUB and check the prices to make sure they are the same. It can resolve slippages and stop hunting practices. Would that be a good thing?Forex Rainmaker
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You sure have put a whole lot of thought has into this sofiax. Anything that makes brokers more accountable and transparent is good thing in my books.
GOR FX
Sergeant
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Highly unlikely that the FX market will ever be centralized.
Decentralization enables all the players to benefit ( brokers, retail traders, corp traders.......)|
Of course this will come along with rules that will see the potential to earn skewed to the corporate side... who wants that? Certainly not the majority.
Decentralization enables all the players to benefit ( brokers, retail traders, corp traders.......)|
Of course this will come along with rules that will see the potential to earn skewed to the corporate side... who wants that? Certainly not the majority.
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