Understanding Spot Forex Market (Part I)
The spot forex market is an over the counter market. The spot forex market is a decentralized network of buyers and sellers. There is no physical central exchange that acts as a central clearing house.
Unlike the forex futures trading that is carried out through the exchange like CBOT, CME etc, over the counter in spot forex means that the buyers and sellers make a binding contract with each other after agreeing on the price and this is not carried through an exchange.
There are several advantages of a central exchange like the counterparty risk for the trades is reduced. There is trading anonymity something that big players want to hide their trails. Forex traders in the spot forex market carry out their activities by dialing directly with one another or through brokers on telephone or internet.
In 2007, Chicago Mercantile Exchange (CME) along with Reuters launched FXMarketSpace; the worlds first centrally cleared global forex market place. In this centrally cleared system, CME will act as the clearing house and guarantee the performance of all the contracts for both buyers and sellers.
Unfortunately FXMarketSpace is an institutional trading platform and is not open to retail forex traders. Only sophisticated investors with net worth of more than $20 Million can trade on the FXMarketSpace.
There are many players involved in the spot forex market. Recently NFA (National Futures Association) had also passed certain new rules that make it more skewed against the small investor like you and me. The spot forex market is still skewed against the retail forex trader. Why is it so?
The spot forex market has always been an unfair playing field for the big boys. It became possible to introduce trading platforms for the retail investors with the advent of the internet. Previously spot forex trading was the playfield of the big banks, multinationals and the hedge funds.
A mushroom growth of online forex brokers took place. Many did not have even enough capital with them to start the brokerage business. But this is the way; the spot forex market has developed over the years.
Why these players trade forex? What type of advantages they have over the retail forex traders? It is essential for you that you understand the nature of the spot forex market and who are the main players. Off balance sheet earnings are the declared aim of most banks and spot dealing in forex which represents a high loss potential but practically no credit risk falls in that category.
Over the counter nature (OTC) of the spot forex market means that currency transactions do not take place at any single place. Instead OTC means that the spot forex market is spread all over the globe.
In order to understand a banks motivation for get involved in spot forex trading, all you have to know is that by combining large forex dealing desk with a decent trading group, you are talking about billions of dollars in profits. A players access to the spot forex market depends on the quantity of transactions of large amounts of money. Players in the spot forex market range from those who trade billions of dollars daily to those who only trade just a few thousand dollars daily. Now these are the main players in the forex market against whom you as a retail forex trader will be competing. - 23208
Unlike the forex futures trading that is carried out through the exchange like CBOT, CME etc, over the counter in spot forex means that the buyers and sellers make a binding contract with each other after agreeing on the price and this is not carried through an exchange.
There are several advantages of a central exchange like the counterparty risk for the trades is reduced. There is trading anonymity something that big players want to hide their trails. Forex traders in the spot forex market carry out their activities by dialing directly with one another or through brokers on telephone or internet.
In 2007, Chicago Mercantile Exchange (CME) along with Reuters launched FXMarketSpace; the worlds first centrally cleared global forex market place. In this centrally cleared system, CME will act as the clearing house and guarantee the performance of all the contracts for both buyers and sellers.
Unfortunately FXMarketSpace is an institutional trading platform and is not open to retail forex traders. Only sophisticated investors with net worth of more than $20 Million can trade on the FXMarketSpace.
There are many players involved in the spot forex market. Recently NFA (National Futures Association) had also passed certain new rules that make it more skewed against the small investor like you and me. The spot forex market is still skewed against the retail forex trader. Why is it so?
The spot forex market has always been an unfair playing field for the big boys. It became possible to introduce trading platforms for the retail investors with the advent of the internet. Previously spot forex trading was the playfield of the big banks, multinationals and the hedge funds.
A mushroom growth of online forex brokers took place. Many did not have even enough capital with them to start the brokerage business. But this is the way; the spot forex market has developed over the years.
Why these players trade forex? What type of advantages they have over the retail forex traders? It is essential for you that you understand the nature of the spot forex market and who are the main players. Off balance sheet earnings are the declared aim of most banks and spot dealing in forex which represents a high loss potential but practically no credit risk falls in that category.
Over the counter nature (OTC) of the spot forex market means that currency transactions do not take place at any single place. Instead OTC means that the spot forex market is spread all over the globe.
In order to understand a banks motivation for get involved in spot forex trading, all you have to know is that by combining large forex dealing desk with a decent trading group, you are talking about billions of dollars in profits. A players access to the spot forex market depends on the quantity of transactions of large amounts of money. Players in the spot forex market range from those who trade billions of dollars daily to those who only trade just a few thousand dollars daily. Now these are the main players in the forex market against whom you as a retail forex trader will be competing. - 23208
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try These 1500 Pips A Day Forex Signals From Heaven. Develop Your Own Forex Trading System!
posted by X - Men @ 5:14 AM
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