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Forex Lessons
Forex Lessons
lesson number
11
11
2.2. Trade systems on Forex
Trading with brokers. Foreign exchange brokers, unlike equity brokers, do not take positions for
themselves; they only service banks. Their roles are to bring together buyers and sellers in the
market, to optimize the price they show to their customers and quickly, accurately, and faithfully
executing the traders' orders.
The majority of the foreign exchange brokers execute business via
phone using an open box system - a microphone in front of the broker that continuously
transmits everything he or she says on the direct phone lines to the speaker boxes in the banks.
This way, all banks can hear all the deals being executed. Because of the open box system used
by brokers, a trader is able to hear all prices quoted; whether the bid was hit or the offer taken;
and the following price. What the trader will not be able to hear is the amounts of particular bids
and offers and the names of the banks showing the prices. Prices are anonymous. The anonymity
of the banks that are trading in the market ensures the market's efficiency, as all banks have a fair
chance to trade.
Sometimes brokers charge a commission that is paid equally by the buyer and the seller. The fees
are negotiated on an individual basis by the bank and the brokerage firm. Brokers show their
customers the prices made by other customers, either two-way (bid and offer) prices or one way
(bid or offer) prices from his or her customers. Traders show different prices because they "read"
the market differently; they have different expectations and different interests. A broker who has
more than one price on one or both sides will automatically optimize the price. In other words,
the broker will always show the highest bid and the lowest offer.
Therefore, the market has access
to an optimal spread possible.
Fundamental and technical analyses are used for forecasting the
future direction of the currency. A trader might test the market by hitting a bid for a small amount
to see if there is any reaction. Another advantage of the brokers' market is that brokers might
provide a broader selection of banks to their customers. Some European and Asian banks have
overnight desks so their orders are usually placed with brokers who can deal with the American
banks, adding to the liquidity of the market.
Trading with brokers. Foreign exchange brokers, unlike equity brokers, do not take positions for
themselves; they only service banks. Their roles are to bring together buyers and sellers in the
market, to optimize the price they show to their customers and quickly, accurately, and faithfully
executing the traders' orders.
The majority of the foreign exchange brokers execute business via
phone using an open box system - a microphone in front of the broker that continuously
transmits everything he or she says on the direct phone lines to the speaker boxes in the banks.
This way, all banks can hear all the deals being executed. Because of the open box system used
by brokers, a trader is able to hear all prices quoted; whether the bid was hit or the offer taken;
and the following price. What the trader will not be able to hear is the amounts of particular bids
and offers and the names of the banks showing the prices. Prices are anonymous. The anonymity
of the banks that are trading in the market ensures the market's efficiency, as all banks have a fair
chance to trade.
Sometimes brokers charge a commission that is paid equally by the buyer and the seller. The fees
are negotiated on an individual basis by the bank and the brokerage firm. Brokers show their
customers the prices made by other customers, either two-way (bid and offer) prices or one way
(bid or offer) prices from his or her customers. Traders show different prices because they "read"
the market differently; they have different expectations and different interests. A broker who has
more than one price on one or both sides will automatically optimize the price. In other words,
the broker will always show the highest bid and the lowest offer.
Therefore, the market has access
to an optimal spread possible.
Fundamental and technical analyses are used for forecasting the
future direction of the currency. A trader might test the market by hitting a bid for a small amount
to see if there is any reaction. Another advantage of the brokers' market is that brokers might
provide a broader selection of banks to their customers. Some European and Asian banks have
overnight desks so their orders are usually placed with brokers who can deal with the American
banks, adding to the liquidity of the market.
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