Introduction to FX Markets
Foreign exchange is the largest financial market on earth, trading trillions of dollars a day, far more than all equity markets combined. Its structure is unusual in ways that matter.
No exchange
FX is over the counter. There is no central exchange, no single order book, and no official closing price. Trading happens through a network of banks and electronic platforms, each quoting their own prices.
Consequences worth understanding:
Prices differ slightly between venues. There is no consolidated tape, so "the" EUR/USD rate is an approximation. This creates genuine arbitrage between platforms.
Relationships matter. A large corporate gets different pricing from a retail client, because the dealer knows the flow is uninformed and hedging-driven.
Transparency is limited. Volume data is estimated rather than reported, and much of the market is not visible to any single participant.
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