The Foreign Exchange market (Forex or FX for short) is the largest and most
liquid financial market in the world. According to the Bank for International
Settlements, the Forex market accounts for daily tunrovers of around four
trillion dollars and the market has been growing year on year.
The FOREX Market is a decentralized, Over-The-Counter (OTC) Market with currencies being traded against each other by Central Banks, Commercial & Investment Banks, Currency Speculators, Governments and other financial institutions.
Unlike a traditional stock market, the foreign exchange market is divided into
levels of access. At the top is the inter-bank market, which is made up of the
largest commercial banks and securities dealers. Within the inter-bank market,
Spreads, which are the difference between the bid and ask prices for the various
currency pairs are razor sharp and vary widely from spreads available to
investors outside the top-tier.
The difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips
for some currencies such as the EUR). This is due to volume. If a forex trader can
guarantee large numbers of transactions for large amounts, they can usually
demand a smaller difference between the Bid and Ask, which is referred to as
better forex spread.
The interbank market caters for both the majority of commercial turnover and
large amounts of speculative forex trading every day. A large bank may trade billions
of dollars daily. Some of this forex trading is undertaken on behalf of customers, but
much is conducted by proprietary desks, trading for the bank's own account.
Until recently, foreign exchange brokers did large amounts of business,
facilitating interbank forex trading and matching anonymous counterparts for small
fees. Today, however, much of this business has moved on to more efficient
electronic systems, referred to as ECN.
FXCC's ECN model provides individual traders with direct access to 'interbank
level' bid/offer spreads on leading currency pairs.