Forex Signals from the Leading Forex Alert Provider! :: Forex Signals

One should not confuse the usage of the term Forex 'market' with an organised exchange such as the New York Stock Exchange or the London Stock Exchange or the Chicago Board of Exchange.

A traditional exchange is located at one physical location and the rules of the exchange are applicable to all stocks (or other financial instruments) listed on that particular exchange.

Members of the exchange, usually 'stockbrokers' arrange all the buying and selling and report to the exchange. The exchange oversees the settlement of transactions, i.e. that the share certificates are delivered to the buyers and the money delivered to the sellers.

The foreign exchange 'market' does not have a similarly organized exchange. Foreign exchange transactions are done 'over-the-counter' between two parties and this movement of 1.5 trillion dollars per day is based on trust between participating parties.

However the most important consequence of the decentralized nature of the FX market is the fact that there is not ONE price at any specific time for any specific currency. Each transaction conducted between a participant in the forex market and another participant is over-the-counter and the price is highly negotiable.

Practically it means that two forex market makers (institutions quoting buying and selling prices simultaneously) on one street block in New York or London can quote, at the same time, different prices for the same currency and one market maker can quote two different prices at the same time for two different customers. This is perfectly acceptable since one customer may only deal in a $10,000 transaction and another may want to deal in a $10,000,000 transaction.

You also need to understand how forex market makers think and how they make their money. They want your money. You think it's just margin, but for them it is an income stream (remember money doesn't flow from the banks and the financial institutions outward towards you; it flows in exactly the opposite direction, from your pocket to their accounts.) Smart forex traders have worked out ways they can 'intercept' these money flows. Forex traders must understand that the entity they deal with, where they deposit their margin, sees their margin as a source of income - for them. Their purpose is not to be a safe custodian of your funds, but to make money from forex market making, the quoting of prices and the income earned from spreads.