| Brokers. |
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| Written by admin admin | |
| Thursday, 14 February 2008 | |
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Brokers. These institutions act as intermediaries or agents rather than principals. They do not trade "against" their customers or do their own proprietary trading (although amongst online brokers you find some hybrids). Their purpose would be to find good prices for their clients to trade at. Like insurance brokers, foreign exchange brokers act as a conduit putting the best bid and offer together to provide the most competitive quotation. They also provide value added services such as research, and general opinions regarding the direction the market is moving in (trends) and news, helping clients to make short-term trading decisions. They also contribute to liquidity by encouraging their clients (market making banks) to provide competitive prices. Example: A typical broking scenario The time is 07:15 in London and already the spot yen desk is fully staffed with brokers sitting in front of rows of open telephone connections to as many as 200 European banks. One of the brokers may be speaking simultaneously to similar desks in Tokyo, Singapore and Hong Kong. From these markets they combine the prices to form an own competitive price, being the best bid and offer making up the quotation. Similar companies in London would be doing the same, with their network. Then in the banking dealing rooms the bids and offers of these different brokerages are heard and the dealer has an option as to which broker's transaction he wants to take or he may even put a bid or offer "inside" the broker's price. Source : Taylor, F, Mastering Foreign Exchange and Currency Options, 1997, Prentice-Hall Online brokerages offering electronic execution will, in the future, gain more and more market share. Example: A simplified online brokerage transaction Indicative price of EU R1USD 1.19901 1.1995 is offered to the customer; Customer requests to buy EUR (1.1995); Broker searches to match with another client wanting to sell at 1.1990; or Broker searches for best deal (in terms of market) with several market makers; Broker relays trade to best price, and makes profit on spread differential Tag it:                  |
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| Last Updated ( Thursday, 14 February 2008 ) |
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