Free Forex Course

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The Forex market is a decentralised exchange. This means that there is no centralised exchange that sets official exchange rates and the market is driven purely by supply and demand.

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.

Where do the prices come from?

The prices that retail Forex traders 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.

forex market hierarchy

BONUS:

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.

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!

currency trading

LESSON SUMMARY:

– 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’.

Lesson tags: free forex course
Back to: Free Forex Course > Step 1 - Introduction to Forex Trading
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