What is ForEx
They think their trades are indeed being brought to the market through a clever "inter-broker relationship" system…
Most transactions in the real interbank market are made through a limited number of private information and dealing networks.
Normally, trading will be conducted, most likely, without leverage and at the quotes of the bank itself, and not the free market. And the bank`s quotes will differ from the desired ones for the worse for the client. Well, this is natural: the bank must also earn money! Its traders will not work for free. Hence follows the second and main misconception of people involved in forex. They think their trades are indeed being brought to the market through a clever "inter-broker relationship" system. However, it is not.
Most transactions in the real interbank market are made through a limited number of private information and dealing networks (for example, such well-known companies as Thomson-Reuters or Bloomberg), where entrance from the street is simply ordered. Many networks do not have gateways that would allow connecting external dealing systems to them in order to route client orders to the market. And it is expensive and therefore not advisable to "drive" each client`s order into such a system.
Each transaction, which is made by currency dealers of banks through such systems, is then processed by the bank`s back office and on the third banking day, it is used to settle the delivery or acceptance of the traded currency. It is naive to believe that orders from clients of domestic forex brokers for 3-5-10 thousand dollars (and even for 100 thousand) are sent to the real market. No one will make, confirm, process the transaction, or make settlements on such a small amount. It`s just not cost effective.
Thus, it can be stated, and forex brokers are well aware of this, that no transactions that they conclude with clients are listed either on the stock exchange or on the interbank OTC market. Where, then, are these transactions executed? And who is the opposite party to such transactions? Read more here forex strategy.