The forex market is a decentralized market, i.e. there is no market or central meeting place where transactions are conducted. Competition between the various participants eliminates the possibility of a monopoly position to raise prices artificially.
If a market maker wants to create a monopoly position, investors will simply take their business with another company. The existing spread is constantly monitored by all participants so that any increase could lead to investors decide to take their money elsewhere. In the stock market, things are different. For example, the New York Stock Exchange (NYSE) is the only place where they can negotiate the actions included in this bag. Using centralized market specialists, who are responsible for uniting buyers and sellers of the shares. Since this is a centralized market which can only create a range of buying and selling at the same time. On the contrary, decentralized markets, as the currency market may have many market makers who offer different prices for buying and selling.
Central Market
By their very nature markets tend to be centralized monopolies. One controls the specialist market; prices can be manipulated to accommodate the interests of specialist and non-investors. If, for example, the market is full of vendors to which the specialist must buy, but no buyers, the specialist will be forced to buy an asset whose price falls rapidly. In this situation, the specialist may simply widen the spread, increasing the cost of the transaction and ensuring that more players entering the market or you can simply manipulate the bid prices in a way that fits their needs.
Market Decentralization
The forex market is a decentralized market that employs multiple market makers and has an established hierarchy for the quality of access to credit, traded volume and sophistication. Participants have the highest level in these characteristics have special preferences.
At the top is the interbank market, which negotiates the highest daily volume of major world currencies. In the interbank market, larger banks may negotiate directly with one another. This market is a system based on relationships that have developed their credit for each participant. All banks can see the rates at which is being negotiated, but each bank must establish a direct relationship with another bank in order to negotiate. Other institutions such as brokerage currency, arbitrage funds and companies have to negotiate through these banks.
Many smaller banks and emerging markets, companies and institutional investors have no access to these bargain rates because they do not have business relations with these large banks. This forces to be dealing with one bank and hence is less competitive rates. Those who are lower on the hierarchy are less competitive rates in the market. The users of these banking and currency exchange houses.
With the recent technological barriers have fallen and the interbank market is increasingly closer to the end user. The online trading has opened the doors to the small investor connecting with the interbank market in an efficient and low cost way. In essence, online platforms serve as a door liquid interbank market. Small investors can negotiate with investor's broking in the same conditions of price and performance.
