Most large forex firms trade in the interbank market with banks such as the Hong Kong and Shanghai Banking Corporation (HSBC), Deutsche Bank, or JP Morgan. When a trader uses one of the major global financial institutions, that trader is trading in the interbank market, which starts at $1 million. Each forex firm has a market maker who maintains order and provides liquidity in the market through market trade pricing. In Forex market making, Forex firms receive feeds from outside providers such as EBS, Reuters, or the banks involved in the trades. Market makers review those outside feeds and establish pricing to offer to clients. Each Forex firm also has a market specialist who intervenes in market situations when there are temporary price disparities.
Forex dealers are responsible for making trading opportunities available to retail investors and providing an orderly market for retail investors, forex dealers handle clearing, extend credit to investors, and provide a number of other back office operations. The role of the Forex dealer is a combination of market maker and market specialist in the equity market. When a retail trader views a quote, a Forex dealer is providing that quote. Firms that act as Forex dealers must register as Futures Commission Merchants (FCMs). The Commodity Futures Trading Community (CFTC), an independent entity or the US government, provides a listing of Futures Commission Merchants (FCMs).
In the United States, FCMs are the market makers in retail forex. The CFTC and National Futures Association (NFA) implement strict requirements for all FCMs. Requirements include adequate capitalization and specific provisions regarding ethics and anti-fraud. These requirements are similar to rules established for dealers and brokers in the securities market. Traders are cautioned against trailing with Forex dealers who are not registered as a FCM.
Forex dealers do not trade in the interbank market, though, some claim to do so. Retail traders do not have the credit rating or trading volume to trade in interbank so that Forex dealers provide traders an opportunity to trade in a limited subset of the larger interbank market.
It is retail forex that attracts millions of people all over the world. You do not need millions to enter market. You do not need any licenses and permissions. All you have to do is to find a trading firm and open an account. You can do it online without leaving your house.
With the development of the Internet retail forex has become very popular because it became widely accessible. This simplicity is one of the major causes why most traders fail there. Forex only seems easy. In fact this is a very serious job that requires much knowledge, experience, persistence and psychological readiness to handle big money.
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