Who controls the Forex market?
Not one single entity controls the Forex market. It is what is known as a decentralised exchange.
Therefore, there is not a single place that sets official exchange rates. Exchange rates are determined by the supply and demand of a currency.
This means that it makes it difficult for price manipulation in the Forex market as there are so many price providers providing great price competition. Prices move quickly and are adjusted instantaneously and accordingly to events!
So, where do the prices come from?
The prices that retail Forex traders (traders like you and me) receive have ultimately stemmed from prices that major banks set for one another.
Major banks trade HUGE volumes with one another in what is known as the ‘interbank market‘. The interbank market is connected via the ‘Electronic Brokering Services‘ (EBS) or the ‘Reuters Dealing‘ system. These systems allow banks to see the exchange rates that each has set for one another.
Therefore, in order to conduct the most business, major banks are competing with each other to offer the best prices.
Governments and central banks are able to manipulate the price of their currency. They do this in order to avoid over (or under) inflating their economy. This is done by tweaking their interest rates.
Woohoo, you’re starting to learn basic fundamental analysis!
Increasing the interest rates will typically increase the value of their currency (and vice versa). By doing this the Governments and central banks are able to manipulate the demand for their currency – which will be reflected in its prices, ultimately stabilising its inflation rates!
We’ll be teaching you how to analyse this kind of information in more detail later on!
You’re doing a great job so far! We promise you that this will all be worth it in the long run. You have to remember that every successful trader (like us here at Everything Trading) had to start learning the basics at some point as well. Remember – the work you put in today, will make a difference tomorrow!
- The Forex market is composed of a decentralised exchange. This means that there is no centralised exchange that sets official exchange rates.
- The prices that retail Forex traders receive have ultimately stemmed from the prices that major banks set for one another.
- Major banks trade HUGE volumes with one another in what is known as the ‘interbank market’.