Knowing The Retail Forex Market
Retail forex market comprises of small individual traders most of whom trade in much smaller size compared to institutional investors. Retail forex traders can?t access the interbank market. They trade through their forex brokers.Know the forex market. Learn fibonacci retracement.
The forex brokers usually take the opposite side of the transactions as the retail traders have to deal directly with their brokers. This aspect of the over the counter nature of the retail forex market shifts the odds of success against individual traders especially if the forex broker acts as the market maker.
Let?s take an example. Suppose you are the retail forex trader. You go long on EUR/USD by buying one standard lot as you are bullish on the pair EUR/USD. Effectively your forex broker will have to go short on EUR/USD by selling one standard lot to you. This is the only way to execute the transaction. Know these forex broker games.
There is an inherent conflict of interest between the retail forex trader and his/her forex broker. This arrangement does not sit well with most of the individual forex traders as they fear that the forex broker acting as the market maker will trade against them. This is not an uncommon practice among the forex brokers.
Forex market and for that matter the retail forex market is an over the counter market with no central clearing house. There is a lack of standard data for traders. This makes it difficult for the individual traders or for that matter other players in the market to know the volume of trading for the different currency pairs.
It is not difficult to know the volume of stocks traded or the futures contracts traded, however, due to the decentralized nature of the retail forex market, this information cannot be provided. Stock and futures traders find it difficult to switch to forex trading due to this lack of volume data.
Another feature of the retail forex market that you should be aware of is that currency exchange rates differ from place to place, screen to screen, depending on which party is offering what. As there is no central exchange which records the currency transactions, there is no universal exchange rate of any currency pair at any given time.
For example, the EUR/USD exchange rate on Broker XX screen may show 1.3500/1.3503, at the same time the EUR/USD exchange rate on Broker YY screen may be 1.3505/1.3508. Some individual traders are even not aware of this aspect of the retail forex market. So you may never know what the best price available is.
Some forex brokers will set fixed spreads while the ECNs usually offer tighter but variable spreads for each currency pairs depending on the market liquidity. Spread on currency pairs may vary from broker to broker.
Retail forex market is a 24/5 market. Being a 24 hour market, boundaries of the trading day are blurred. Traders from Hong Kong will show a different timing from their US counterpart who tend to display the EST. For this reason, many traders tend to use the GMT.
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