Forex Market Structure Explained: Understanding the FX Hierarchy
The forex market operates differently from centralized exchanges. Understanding its structure helps you navigate trading more effectively and understand where your orders actually go.
The interbank market establishes prices through:
Frequently Asked Questions
What is the interbank forex market?
The interbank market is where major banks trade currencies directly with each other. It's the most liquid level of the forex market, setting the base prices that eventually filter down to retail traders.
Should I use an ECN or market maker broker?
ECN brokers offer no conflict of interest and variable spreads, ideal for active traders. Market makers may offer fixed spreads and guaranteed fills, which can suit beginners. Consider your trading style, volume, and priorities.
Why do forex spreads widen during news?
During major news events, uncertainty increases and liquidity providers widen their quotes to protect against sudden price moves. This increased spread is the market's way of pricing in higher risk.