The Forex Towers (Hierarchy)

The participants in the spot forex can be organized in a hierarchy, depending on their sizes. Below is a sketch of the participants in the fx market; 

I believe the tower said it all?

At the top of the hierarchy is the interbank market which is made up of the major banks of the world and other smaller banks. This particular group trade directly with each other at the electronic brokering Services (EBS) or the Reuters Dealing 3000-Spot Matching.

There is great competition between the two giant feeds (the EBS and the Reuters).They are in search of clients and try to beat each other for market share. Both companies do offer most currency pairs, but some of the currency pairs are more liquid on one than the other.
Let’s see some of the currency pairs that are more liquid with each company;
 
EBS plaform;
The USD/CHF, EUR/JPY, USD/JPY and EUR/USD are more liquid in this platform. 
 
Reuters platform:
The NZD/USD, AUD/USD, USD/CAD, EUR/GBP and GBP/USD, are more liquid.

All the participants (major banks) in the interbank market can see the rates offered by each company, but this doesn't necessarily mean that anyone can make deals at those prices.
The rates will be dependent upon an established relationship or trust between the trading parties (Amount invested or Credit involved). The better your credit level and stand with the company, the better the interest rate and loan you can get.
It’s a kinda group of individual walking to a bank to obtain loan. Some will get greater attention while others will be turned down.
This is because of what the individual will put aside as collateral.
 
No collateral, No loan! I think this is simplified?
 
Likewise in the Forex market, the greater your credit, the greater your trust. There are types of interest rate obtained by clients. We have "B.F.F. rate," the "customer rate," and the "ex-wife-you-took-everything rate." 

Next on the tower are the hedge funds, commercial companies, retail market makers, and retail ECNs. This particular group do not have strong credit relationships just like the participants of the interbank market. They therefore carries out their transactions through commercial banks. By doing so, they obtain a higher rates and transaction cost than those participants of the interbank market. 
 

Down the tower are the retail traders including you and I. It was very difficult for individuals to participate in the forex market initially. The advent of the computer and the internet have made this possible for everybody to join  the market from anywhere in the world.
Oh mama!
You are free to take part with the big guys, and pick some great profit as long as you are connected to the internet.

Having seen the structure of the forex market, it will be very important also to know who is who in the game of forex.
Yea, I think the spot market is a game. And in any game; football, handball, Volleyball…….., name it, there are players.
One of my students fondly asked me; “Do we also have Javeline, short put, long jump…. players too?

Oopsss……..

I think he got it all wrong! In this scenario, they should be called athletes.
Let’s take a look at some great forex players (people involved) in the currency market.
 

Forex Market Structure

Permit me to use the stock market to clearly elaborate my point on forex market structure. In the stock market, everyone (buyers and sellers) must go through a centralized exchange such as the New York Stock Exchange (NYSE) to buy or sell stocks.
You have no choice other than to execute your trade through them. They could even ignore your feed and put it when they deem necessary. You had to make some calling and writing before you have your trade filled.
Take a look at the diagrammatic structure of the stock market.

The stockmarket is very monopolistic. There is only one body (Specialist) that controls prices. If you don’t go through this body, you have no trade at all. This gives the master of the market the right to manipulate entries to his own benefit.
Let us explain a little, so that you can have great understanding of what we are trying to portray.
In the stock market, you have to force the specialist fulfill order of its clients.
Ok, let’s assume that the number of sellers eventually exceed the number of buyers. Every client want to sell, and buyers are not ready to take the offer. The specialist now has handful of stock that no one is ready to buy.
What do you think will happen?
                                         

 Simple! 
If you are in his shoes, you must device a means to profit therein.
In order to prevent more sellers from entering the market, the specialist will simply widen the spread or increase the transaction cost. This means that the specialists can manipulate the quotes it is offering to accommodate its needs.
What about the Forex Market?

Forex is Decentralized

In the forex market, you don't need to go through a centralized exchange with just one price. There is no single price (fixed price) for a given currency at any time. This simply means that quotes are not the same from dealers, as you have lots of them to make your choice from. Let’s take a look at the diagram below to envision how the structure of the currency market could appear to be;

The lack of control over price in the market makes it so great and awesome. The market is so huge and competitive and dealers are always ready to give you the best deal almost every single time. Some offer you the lowest spread while others could even give 20%– 50 % of initial deposit as bonus.

Mind you, such bonuses could cause you great headache during withdrawal of your profit. Some of the dealers would want you to trade certain volume of contract before you can carry out any withdrawal. Therefore, do diligent research before choosing your dealer and avoid too much sugar in your tea. Sweet things at times are unfavorable to health.

I do not want to see long posts in Forums, slamming dealers.

Again, one interesting thing about forex is that you can trade from anywhere, as long as you have internet access.