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Summary of the FX Market, Structure, and Tips

Summary of the FX Market, Structure, and Tips

The Foreign Exchange market, also referred to as the "Forex" or "FX" market is the largest financial market in the world, with a daily average turnover approaching the US$3 trillion mark.

Spots, forwards, futures & swaps make up the bulk of foreign exchange trading. Close to 70% of all currency trades take place during London and New York trading hours. Tokyo, Hong Kong, and Singapore trading hours complete another 20% of trading. Sydney and Wellington trading hours make up the remaining 10%. It's a 24 hour market from Sunday 5:00pm through Friday 5:00pm Eastern Time.

Unlike the equity (NYSE) and commodity (CME) exchanges, the spot market is an over-the-counter trade, and therefore does not trade on a central exchange. Instead, most currency trades are conducted at the interbank level. This interbank market consists of hundreds of international banks that trade between each other, however, only a dozen or so of the largest banks in the world actually account for the massive volume and trading activity. Interbank trades are now mostly conducted electronically via EBS or Reuters. EBS and Reuters are interbank platforms used exclusively by the banks and have the deepest liquidity.

The top liquidity providers in the market include: Goldman Sachs, Deutsche Bank (the largest bank in the world), Citigroup, UBS, JP Morgan, Bear Stearns, RBS, HSBC, Dresdner Kleinwort, Bank of America, Lehman Brothers, and Barclays. These liquidity providers are present on most of the leading FX trading platforms.

Clearing firms (preferably prime brokers) provide the avenue for banks and traders to meet each other on the multi-bank portals and clear trades. The clearing firms offer traders the best multi-bank platforms to trade, and transaction costs are considerably lower than the retail brokers that litter the market with their no-commission trading. The retail brokers (type "forex" in a google search and there you have them), usually cater to the less experienced and automatically put the trader at a disadvantage when you deposit your money with them. Most of these retail brokers never offer traders direct access to the banks, instead, they provide their own proprietary platform that benefits their bottom line, and puts you at a disadvantage.

Institutional platforms such as Currenex & LavaFx are the platforms of choice for serious traders. These platforms provide traders with the best pricing and liquidity around in the spot market. They are recognized for their speed of execution and deeper liquidity. The prices/spreads on these platforms are usually better than the interbank market, however, the liquidity is not as deep as the EBS/Reuters platforms. Aside from trading the spot market, FX futures traded on the Chicago Mercantile Exchange is also an excellent way to trade the currency market with lower risk to the average trader.

- Sam (Courtesy of Ed - Organizer of the Los Angeles FX Group)

Table of Contents

Page title Most recent update Last edited by
Meet The Seven Star FX Ltd to Success in FX Trade April 2, 2014 12:02 AM sevenstarfx
The Vision of The Vancouver Forex Trading Group February 12, 2008 5:36 PM Samuel
Summary of the FX Market, Structure, and Tips February 12, 2008 5:30 PM Samuel
About The Vancouver Forex Trading Meetup Group September 25, 2009 4:30 PM Samuel

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