Different Exchange Systems In Forex

The foreign exchange currency trading market has various different foreign exchange systems through which currencies can be traded. It is beneficial to understand various exchange systems in forex as it will help you while trading in forex markets. Presented below is some valuable information regarding these major different exchange systems in forex for you. Please take a look:

Trading with Brokers: The Forex brokers are part of the one of the different exchange systems in forex. Their primary function is to bring closer the buyers and the sellers in the forex market from around the world. Also, the broker exchange systems in forex helps in the quick, accurate and efficient execution of orders of various forex traders. The majority of transactions which are completed through the brokers using different systems in forex are via phone. The phone lines between brokers and banks are dedicated, or direct, and are usually in-stalled free of charge by the broker. A foreign exchange brokerage firm has direct lines to banks around the world. Most foreign exchange is executed through an open box system—a microphone in front of the broker that continuously transmits everything he or she says on the direct phone lines to the speaker boxes in the banks. This way, all banks can hear all the deals being executed. Different Foreign exchange systems used by brokers in doing the analysis of market trends. The fundamental and technical analyses are used for forecasting the future direction of the currency. A trader might test the market by hitting a bid for a small amount to see if there is any reaction. Brokers cannot be forced into taking a principal's role if the name switchbacks longer than anticipated. Another advantage of the brokers' market is that brokers might provide a broader selection of banks to their customers.

Direct Dealing: Another most common exchange system in forex is direct dealing. These exchange systems in forex are based on the principle of trading reciprocity. The market maker and the bank making or quoting a price expects the bank that is calling to reciprocate with respect to making a price when called upon. The advantage of direct dealing is that it provides more trading discretion, as compared to dealing with other different exchange systems in forex such as the trading with a broker. Sometimes traders take advantage of this characteristic. Direct dealing used to be conducted mostly on the phone. Dealing errors were difficult to prove and even more difficult to settle. In order to increase dealing safety, most banks tapped the phone lines on which trading were conducted. This measure was helpful in recording all the transaction details and enabling the dealers to allocate the responsibility for errors fairly. But tape recorders were unable to prevent trading errors. With the introduction of dealing systems in 1980s, the direct dealing exchange systems in forex were changed forever.

Dealing Systems: These types of exchange systems in foreign exchange are actually online computer systems which are linked to the contributing banks around the world on a one on one basis. These exchange systems in forex are highly reliable and most preferred. The performance of dealing systems greatly depends upon the speed, reliability, and safety. Accessing a bank through a dealing system is much faster than making a phone call. There are continuous improvements in dealing foreign exchange in order to offer maximum support to the dealer's main function. This software is highly reliable in picking up the big figure of the exchange rates and the standard value dates. Most banks use a combination of brokers and direct dealing systems. Both approaches reach the same banks, but not the same parties, because corporations, for instance, cannot deal in the brokers' market. Traders develop personal relationships with both brokers and traders in the markets, but select their trading medium based on price quality, not on personal feelings. The market share between dealing systems and brokers fluctuates based on market conditions. Fast market conditions are beneficial to dealing systems, whereas regular market conditions are more beneficial to brokers.

Matching Systems: This exchange system in forex is different from the other foreign exchange systems such as the dealing systems. In the dealing system the currency trading is done directly and on a one-on-one basis, however in matching systems the currency trading is done anonymously and individual traders deal against the rest of the market. This is similar with other different systems in forex such as the trading the market with the help of a broker. However, unlike the brokers' market, there are no individuals to bring the prices to the market, and liquidity may be limited at times. Matching Systems are well-suited for trading smaller amounts as well. The dealing systems characteristics of speed, reliability, and safety are replicated in the matching systems. In addition, credit lines are automatically managed by the systems. Traders input the total credit line for each counter party. When the credit line has been reached, the system automatically disallows dealing with the particular party by displaying credit restrictions, or shows the trader only the price made by banks that have open lines of credit. As soon as the credit line is restored, the system allows the bank to deal again. In the inter bank market, traders deal directly with dealing systems, matching systems, and brokers in a complementary fashion.