Retail forex trading surges definition
- Eur/usd analysis forexprostr
- 2 Окт, 2012
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Only special, smaller boats clients of the bank are allowed. Which is fine by most of the large boats, since they also own their very own exclusive island anyway. Another example, the two big islands in the middle, only the biggest boats are allowed to trade there. The people who trade on these big boats are called dealers. So on these islands, dealers trade with each other in large quantities. The interdealer segment of the FX market is where trades occur between FX dealers, as opposed to between dealers and their end customers, such as exporters and importers, asset managers, hedge funds, and even some retail forex brokers.
In the past, only the biggest of boats were allowed on these big islands. This is because large boats preferred to only trade with other large boats. They deemed smaller boats as too risky to trade with. This is how the medium boats are able to access these big islands and trade with the other large boats. In exchange for the privilege to trade in its name, the large boat typically charges the medium boat a fee based on the volume of trades done.
Basically, the clear distinction that separated the interdealer market and the rest of the market in the past has now become blurred. Trades occur electronically or via voice. Usually with a markup. A retail forex broker is one of the tiny boats.
Of course, since some retail forex brokers are larger than others, their boats also come in different sizes. There are large retail forex brokers. And there are smaller ones. A PB is an entity that is willing to represent the retail forex broker in all its trading transactions that occur in the lake and settle the trades in its name. But large boats are picky. They do not meet the rigid standards and are not able to secure a prime broker relationship, which prevents them from being able to trade with others in the FX market.
Prime of Prime PoP refers to a firm that has an account with a Prime Broker PB that offers its services to other market participants such as forex brokers. The PoP allows the smaller retail broker to trade through it. So if a retail forex broker is one of the tiny boats more like rowboats and kayaks , where do you, the retail forex trader, fit in this picture? If other ships already deem them too risky to trade with them directly without some sort of chaperone PB or PoP , why would they want to deal with individual retail forex traders?
A retail forex trader is NOT a boat Your retail forex broker is a boat. But… YOU are in an aquarium on their boat. Your broker creates its own market for you to trade in. You trade with, and ONLY with, your forex broker.
When you enter an order, it is your broker who takes it. As a retail forex trader, when you enter an order to buy or sell a currency pair, the forex broker IS the counterparty to this trade. Think of it like a simulation. But in the end, you are not trading with other traders…. It is taking the opposite side of ALL your trades. An execution venue is just a fancy word where orders are placed and executed.
No money is leaving the broker. It is only when it needs to hedge trades that real money is used by the broker. But these hedging trades made by the broker, not you. This topic will be discussed more in a future lesson. Nor do you trade with other traders. Not even with other traders who use the same forex broker as you. For example, if you and another trader use the same broker, you both will NEVER trade with each other, both of you will always only trade with the broker.
You are not in the same aquarium with the other trader. Retail traders do not have access to the FX market. They only trade with their retail FX broker. In the institutional market, retail forex brokers are referred to as retail aggregators. They then transact in the institutional FX market to manage their exposure to market risk. This will be discussed in more detail later. While your broker can participate in the institutional FX market, you cannot.
And can only trade whatever your broker offers you. The electronic trading platform that your broker provides you is only connected to your forex broker. You are accessing that trading platform only to transact with your broker. Again, you are not directly trading with any other customers of the broker. Put simply: When you sell, the retail forex broker is the buyer. When you buy, the retail forex broker is the seller.
You are only able to open and close your positions with your broker. When you open a position, you actually enter into a contract, which is a private agreement between two parties: you and your forex broker. Contracts you enter with your broker can only be closed by your broker. This means that you will be NOT able to close a position with another party. The quotes that your forex broker provides you may be informed by or even come directly from the institutional FX market via price feeds , but it is your broker who you are still trading against.
Nobody else. Why is this important to know? Since the broker is the one taking the opposite side of your trade, this creates a potential conflict of interest. If your trade makes money, your broker loses money. No such restrictions existed prior to , when these rules came into effect. These limits, which came into effect in , vary between and just , depending on the asset class.
ESMA's major currency pairs comprise any two of the following currencies: the US dollar, the euro, the Japanese yen, the pound sterling, the Canadian dollar or the Swiss franc. These measures remain in place to this day. Japan[ edit ] In Japan, the Financial Services Agency FSA restricted leverage available to retail traders across foreign exchange transactions as early as Maximum leverage was capped at in August , and was subsequently reduced to in August
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