The forex market, otherwise known as the foreign exchange market, is the largest and most liquid market in the world. It is the largest financial market in the world with a daily volume of over $5 trillion, serving as the primary exchange mechanism for banking, business and global trade networks. Forex is like nothing else on Earth!
The forex market is by FAR the largest financial market in the world, coming in significantly larger than even the stock markets of the United States and Japan combined! Making the distinction between a stock market traded via a single, central exchange and the forex market which is totally decentralised in the way that forex orders are executed, is a key lesson for all market participants.
Forex dwarfs the major stock markets around the world as they are traded centrally on a single exchange. While this might sound intimidating at first, it is quite an easy concept to grasp and is the biggest advantage that forex traders have over their stock trader counterparts.
Let’s run quick comparison between the two markets:
Stock Market Monopolies
Stock markets work by every single trade running through a central exchange between the buyers and sellers. This means that the one exchange offers the one price to both parties. By the very definition of a monopoly, it is the exchange that is the winner here and not the traders. They can essentially set and manipulate the prices and spreads to their choosing.
As a stock trader, you are at the mercy of a single exchange. Something as simple as a computer going down can have catastrophic effects on an entire stock market. With every single trade having to go via the one exchange, consumers not only lose by getting an inefficient price, but also put themselves at the total mercy of a single exchange’s technological solution.
Forex trading on the other hand…
Forex Market Decentralised Structure
Forex markets work in a completely decentralised manner. As the market is so massive, there is no single price for your chosen forex currency pair at any given time and therefore prices that are quoted can vary from forex broker to broker. Because every single forex trade isn’t going through the one middle party (exchange), this competition is a huge advantage for the trader.
Competition for trades drives quotes and spreads down. This is why depending on the forex broker that you decide to trade with, you will most definitely see slight differences in the prices that you are quoted. Don’t worry if the price you see doesn’t match the price you see elsewhere online. This is completely normal and is a good thing because it is proof of competition for prices.
While this can be a slightly overwhelming concept to grasp at first, competition means you as a forex trader, receive only the best prices available EVERY SINGLE TIME. Something that your stock trading counterpart would never be able to say.
Forex market decentralisation is all about benefiting the trader and not the exchange.
As you can see, there really is only one answer when it comes to which is the best market to trade. Decentralisation is the key to keeping costs low and giving forex traders the most competitive price quotes.
Use the buttons to the right to open a live forex trading account with Australian regulated Forex broker, Vantage FX.