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For Question #1 Read: Forex Market Structure In a centralized market, there is only one entity and one specialist that controls prices. All trades must go through this specialist. Because of this, prices can easily be altered to benefit the specialist, and not traders.
For Question #2 Read: Forex Market Structure At the very top of the forex market ladder is the interbank market. Composed of the largest banks of the world and some smaller banks, the participants of this market trade directly with each other or electronically through the Electronic Broking Services (EBS) or the Reuters Dealing 3000-Spot Matching.
For Question #3 Read: Forex Market Structure Unlike in trading stocks or futures, you don’t need to go through a centralized exchange like the New York Stock Exchange with just one price. In the forex market, there is no single price for a given currency at any time, which means quotes from different currency dealers vary.
For Question #4 Read:Forex Market Players Since the forex spot market is decentralized, it is the largest banks in the world that determine the exchange rates. These large banks, collectively known as the interbank market, take on a ridiculous amount of forex transactions each day for both their customers and themselves.
For Question #5 Read:Forex Market Players Central banks affect the forex market when they adjust interest rates to control inflation. By doing this, they can affect currency valuation. There are also instances when central banks intervene, either directly or verbally, in the forex market when they want to realign exchange rates.
For Question #6 Read:Forex Market Players Comprising close to 90% of all trading volume, speculators as forex market players come in all shapes and sizes. Some have fat pockets, some roll thin, but all of them engage in the forex simply to make bucket loads of cash.
For Question #7 Read:Know Your Forex History! Known as the “Bretton Woods System,” the agreement set the exchange rate of all currencies against gold. This stabilized exchange rates for a while, but as the major economies of the world started to change and grow at different speeds, the rules of the system soon became obsolete and limiting.
For Question #8 Read:Know Your Forex History! In 1971, the Bretton Woods Agreement was abolished and replaced by a different currency valuation system. With the United States in the pilot’s seat, the currency market evolved to a free-floating one, where exchange rates were determined by supply and demand.
For Question #9 Read:Know Your Forex History! Some smart business-minded marketing machines introduced internet-based trading platforms for individual traders. Known as “retail forex brokers”, these entities made it easy for individuals to trade by allowing smaller trade sizes. Unlike in the interbank market where the standard trade size is one million units, retail brokers allowed individuals to trade as little as 1000 units!
For Question #10 Read:Know Your Forex History! Brokers basically come in two forms: 1. Market makers, as their name suggests, “make” or set their own bid and ask prices themselves and 2. Electronic Communications Networks (ECN), who use the best bid and ask prices available to them from different institutions on the interbank market.
For Question #11 Read:Know Your Forex History! A type of retail forex broker, Electronic Communications Networks (ECN) use the best bid and ask prices available to them from different institutions on the interbank market.