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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: Wiley Trading Series
- Sprache: Englisch
The foreign-exchange market is often referred to as the Slaughterhouse where novice traders go to get 'chopped up'. It is one of egos and money, where millions of dollars are won and lost every day and phones are routinely thrown across hectic trading desks. This palpable excitement has led to the explosion of the retail FX market, which has unfortunately spawned a new breed of authors and gurus more than happy to provide misleading and often downright fraudulent information by promising traders riches while making forex trading 'easy'.
Well I'll let you in on a little secret: there is nothing easy about trading currencies. If you don't believe me then stop by Warren Buffet's office and ask him how he could lose $850m betting on the dollar or ask George Soros why his short yen bets cost him $600m not once but twice in 1994. What's wrong with these guys, don't they read FX books?
In reality, the average client's trading approach combined with the unscrupulous practices of some brokers make spot FX trading more akin to the games found on the Vegas strip than to anything seen on Wall St. The FX market is littered with the remains of day traders and genius 'systems,' and to survive in the long-run traders have to realize that they are playing a game where the cards are clearly stacked against them.
Have you ever had your stop hit at a price that turned out to be the low/high for the day? Bad luck perhaps? Maybe. What if it happens more than once? Do you ever feel like the market is out to get you? Well guess what, in this Zero Sum game it absolutely is.
Covering the day-to-day mechanics of the FX market and the unsavoury dealings going on, Beat the Forex Dealer offers traders the market-proven trading techniques needed to side-step dealer traps and develop winning trading methods. Learn from an industry insider the truth behind dirty dealer practices including: stop-hunting, price shading, trading against clients and 'no dealing desk' realities.
Detailing the dealer-inspired trading techniques developed by MIGFX Inc, consistently ranked among the world's leading currency trading firms, the book helps turn average traders into winning traders; and in a market with a 90% loss rate winning traders are in fact quite rare! More than just a simple manual, Beat the Forex Dealer brings to life the excitement of the FX market by delivering insights into some of the greatest trading triumphs and highlighting legendary disasters; all written in an easy to read style.
Make no mistake about it there is a lot of money to be made in currency trading, you just have to know where to look. Sidestepping simple dealer traps is one way of improving your daily p&l, but it is surely not the only one. Successful trading comes down to taking care of the details, which means skipping the theoretical stuff and providing only up-to-date, real-life examples while sharing the FX trading tips that have proved so profitable over the years. By stripping away the theory and getting down to the core of trading, you too will find yourself on the way to beating the forex dealer!
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Seitenzahl: 273
Veröffentlichungsjahr: 2009
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Table of Contents
Series Page
Title Page
Copyright
Acknowledgements
Introduction
From Vegas to Wall Street
Beat the Dealer
Part I: Through the Eyes of a Trader
Chapter 1: On Markets
A Little Market Theory
Chapter 2: The Currency Market
A Select Club
An Unfair Playing Field
Chapter 3: A Rare Breed
The Trader's Edge
Forex Traders
Chapter 4: FX Dealers
Always Be Fading
Can Dealers Lose Money?
Traders Versus Dealers
Chapter 5: Today's FX Market
A Question of Numbers
The New Asset Class
Chapter 6: The Players
Market Makers (Dealers)
Corporates
Speculators (Hedge Funds, CTAs, Prop Desks, COMs)
Central Banks
The Food Chain
The Role of the Small Speculator
Part II: The Retail Side of Things
Chapter 7: Card Stacking
Marketing Machines
Pricing
Chapter 8: Don't Trust Your FCM
Oversight
Demand Change
Chapter 9: Third-Party Services
If the Subscription is Free, How Do They Make Money?
Scams
The Good Guys
Chapter 10: Fighting Back
Use Different Price Feeds
Keep Detailed Records
Official Actions
Trade with the CME
Trading Habits
Part III: Joining the 10 %
Chapter 11: Becoming a Great Trader
Trading to Your Strengths
Overleverage
Flexibility
Chapter 12: Picking the Right Approach
Using Technicals
Discretionary Trading
Part IV: FX Trading Tips
Chapter 13: Adapting to the FX Market
Trading Different Money Centers
Passing the Baton
Using a Rolling Pivot Point
Time Management
Chapter 14: Trading Thin Markets
Taking Advantage of Thin Markets
Chapter 15: Using the Crosses
Pressure Valves
Chapter 16: All About Stops
Stop Levels
Chapter 17: Characteristics of FX Trends
Trend Example
Chapter 18: Trading the FED
The Trade
Chapter 19: Fading News
Chapter 20: FX Analysts: Who Cares?
Part V: Dealer Trades
Chapter 21: Trading Against Dealers
The Information Flow
Trading Like a Dealer
Chapter 22: The Big Figure Trade
Keys to the Trade
Chapter 23: The Friday to Sunday Extension
Keys to the Trade
Chapter 24: Sticking it to Your Dealer
Keys to the Trade
Part VI: The Future
Chapter 25: The End of the Beginning
It is Up to You
Appendix: Trading How to's
How to Set Up Your Trading
Understand the Big Picture
Scenario Planning
Stay Focused
Always Take Notes
How to Trade Price Action
Technical Help
How to Build a Position
Scaling
Building a Position
Trade Your Timeframe
How to Trade Out of a Losing Position
The Run-Away Trade
When to Cut and Run
Notes
Speaking Like a Dealer
FX Glossary
Trading Maxims
Bibliography
CFTC Minimum Finance Requirement
Index
Copyright © 2008
John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester,West Sussex PO19 8SQ, EnglandTelephone (+44) 1243 779777
Email (for orders and customer service enquiries): [email protected] our Home Page on www.wiley.com
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British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
ISBN : 978-0-470-72208-4 (HB)
Acknowledgements
This book required the expert help and contributions of a wide range of friends and colleagues. Special thanks go out to all of the great people at MIGFX, whose hard work and dedication to trading gave rise to this project. I would also like to give special thanks to Richard Hoffman for his help and dedicated research, and to the many industry contacts whose insights proved invaluable. Without you this book would not have been possible.
I would also like to thank the great people at ProRealTime.com for granting me permission to use their fabulous charts. Every trader should visit their website and check out their charting packages, for they are truly top-notch in the industry.
Introduction
Over the years, I have tried to get my hands on every currency trading book that I could find, but as you may well know the pickings are slim when it comes to FX literature. Apart from a few notable exceptions, most of the available material seems to fall into one of two categories: unabashedly theoretical or completely misguided. The dry, outdated, and sometimes esoteric academic works tend to leave the reader with the perception that currency trading is as gentlemanly and ordered as the world of stamp collecting, when in reality nothing could be further from the truth in a market referred to as a “slaughterhouse” where traders routinely get “chopped up”. The FX market I know is one of egos and money, where millions of dollars are won and lost every day, and phones are routinely thrown across hectic trading desks. This palpable excitement has led to the emergence of a second class of literature, often misleading and downright fraudulent, where authors promise the reader riches by offering to make forex trading “easy”.
Well, I'll let you in on a little secret: there is nothing easy about trading currencies. If you don't believe me, then stop by Warren Buffet's office and ask him how he could lose $850 million betting on the dollar or ask “King” George Soros why his short bets lost him $600 million not once but twice in 1994. Don't these guys read FX trading books? If these investment legends can lose billions in the FX market, what makes anyone think there is anything easy about it?
The average retail trader must feel a terrible disconnect between what is described by famous “experts” and their actual trading experiences. Theory very rarely translates into fact when it comes to trading, and real-life FX trading is much more complicated and tricky than any guru would have you believe. In this jungle it is a kill-or-be-killed attitude that marks survival, and the minute you step on to the playing field a target has been placed next to your account number.
Realizing that most FX books in print are either written by scam artists or academics with little real-world trading experience, I decided to put my own thoughts to paper. While I certainly do not proclaim to be any sort of market wizard, the market insights I have gained while managing a successful currency fund should prove valuable to readers, even if they are just starting their trading careers. Being a firm believer in the “small is beautiful” mantra, I have therefore tried to keep this book short, and to the point.
The purpose of this book is two-fold. First, by explaining the day-to-day mechanics of the FX market and pointing out some of the more unsavory dealings going on in the retail side, I hope to make evident for the reader the risks and rewards involved in currency trading. The second objective of the book is to help turn average traders into winning traders. “Average” traders are losing traders; winning traders are in fact quite rare. However, by highlighting some market-proven trading tricks and techniques, I hope to give traders an initial leg-up.
As you may have guessed, this book takes its name from Edward O. Thorp's landmark work on blackjack, Beat the Dealer. In 1962, the MIT mathematics professor revealed to the public the gambling industry's tricks and traps, while at the same time managing to teach a successful method for playing the game of twenty-one. Likewise, you will find this book roughly split into two parts: the first half is dedicated to revealing the foreign exchange market's unfair practices and the second half is designed to help the retail FX trader implement an effective and winning game plan by providing trading tips and detailed examples.
From Vegas to Wall Street
The past five years has seen the FX market open its arms to nontraditional participants, and now everyone from dotcom investors to cash-strapped grandmas are jumping in hoping to strike it rich.
What most of these new participants fail to realize is that they are stepping on to a battlefield littered with the remains of day traders and genius “systems”. It is frequently noted that over 90 % of FX traders do not survive in the long run, yet you won't find that statistic in any of the publicity dished out by the FX brokers. To be profitable, retail traders must realize that the foreign exchange market was fundamentally developed as a professional's market, and its outdated conventions and procedures mean that it still is very much geared toward the professional. In a market where the retail trader exerts little (though growing) influence, most can have little hope of success.
The retail brokers who have sprung up recently would like you to believe that currency trading is a high form of financial speculation. In reality, the average client's trading approach combined with the unscrupulous practices of some brokers make spot FX trading more akin to the games found on the Vegas strip than to anything seen on Wall Street. The new breed of on-line FX brokers simply share too many of the traits employed by casinos to stack the odds in their favor, including these:
The “house” always has the advantage (the spread).
The “house” feeds off the player's greed and actively promotes it (by offering trading signals, excessive leverage, and fancy platforms resembling slot machines!).
The “house” adopts various dubious risk-management controls, which include cheating and cutting off winning players.
All of these benefits ensure that, in the long run, the house (broker) will end up with virtually all of the player's (trader's) money. The odds are simply stacked in their favor.
Thorp's original Beat the Dealer was brilliant in that he focused his energy on a niche game (blackjack) which featured changing odds. In a game with fixed odds (such as the lottery) a player is virtually assured ruin, while a game with shifting odds allows the smart player to effectively control his risk while maximizing his gains. Although the long-run odds may not favor the player, a set of rules can be adopted that allow the gambler to “play” only when the odds are in his favor, thus greatly improving his chance for success. Playing in this way enables you to refrain from gambling (betting on luck) and concentrate on playing the probabilities. FX traders need to take a cue from their card-playing counterparts and learn to trade only when the odds are shifted in their favor. In this spirit, the last part of this book is dedicated to exposing high-probability trades commonly seen in the intra-day FX market, which can effectively be used to “double up” when they are seen.
Beat the Dealer
In my experience, most retail FX traders seem to have a decent system or genuine “feel” for the market, yet more often than not they still find themselves posting steady losses. They see the possibility for greatness, yet they are unable to grasp it. Something must be missing . . . but what? Although they may spend hours dutifully studying technical analysis, candle charting, and the history of the market, seldom do they take a moment to concentrate on their number one killer: the forex dealer. By preying on the small speculator, these shadowy characters are often single-handedly responsible for turning winning trades into losers.
Both casinos and FX brokers have an ace up their sleeve which ensures that the odds are always shifted aggressively against a player, and not surprisingly these villains share a common name. Dealers are much more than simple order-processors (do you want to buy/sell, hit/stay?); they are in fact the house's fail-safe device sent out to take down any player who is deemed to be winning “too much”. Their direct and purposeful interference can ruin even the most advanced or elegant trading system.
Have you ever had your stop hit at a price that turned out to be the low/high for the day? Bad luck perhaps? Maybe. What if it happens more than once? Do you ever feel like the market is “out to get you?” Well, guess what . . . in this zero-sum game it absolutely is.
Dealers make particularly tough opponents for traders because they act on better information. Although it is hard to bluff when the other party knows your cards, you can however profit by betting on their actions, and a dealer's actions are, after all, very predictable. You know what they want (your money) and you have a rough idea of how they will come after it (running stops, shading prices, fading moves, etc.); all that you now need is a way to exploit these actions. Throughout this book you will find information meant to help you identify and counteract typical dealer traps, which if implemented correctly can instantly improve your trading profits. Many of these are exactly the same techniques used by hedge funds and CTAs to exploit loopholes left by their dealers, which can also be used successfully by the retail trader.
Make no mistake about it. There is a lot of money to be made in currency trading; you just have to know where to look. Sidestepping dealer traps is one simple way of improving your daily P/L, but it is surely not the only one. Successful trading comes down to taking care of the details, and for me the only way to do this is by providing concrete, up-to-date, real-life examples, and sharing the FX trading tips that have proved so profitable over the years.
In the end, it is my hope that by stripping away the theory and getting down to the core of trading you too may find yourself well on your way to beating the forex dealer!
Some Terms Commonly Used In This Book
Individual (Retail) Trader Nonprofessional trader; i.e. speculates for his own account as opposed to trading for a bank or hedge fund. Normally trades small sizes (under $1 million), usually either for speculation or fun.
Interbank Market Loose term used to describe the FX trading done by banks directly with each other, as opposed to trading with clients. Can essentially be thought of as the “wholesale” FX market, where entry is restricted to professionals. Not a physical market or exchange, the interbank market is a web of credit facilities built over time and used by banks to trade with each other directly or through electronic matching platforms such as Reuters and EBS.
Retail FX Broker Also called Futures Commission Merchant (FCM), these are companies created to “open up” the spot currency market to the retail trader through their small minimum account sizes (as low as $300). In theory, they should simply be the middlemen between the FX wholesalers and their retail client base, charging a small fee (the spread) for their service. Much like on-line stock brokers (E-trade, etc.), they promise to “connect” the retail trader to the market at reduced costs, yet often fall well short of this promise.
FX Dealer If the interbank is the wholesale market and the brokers are the middlemen, then the dealers are the salesmen. Dealers typically work for FCMs or banks, and their primary responsibility is to process client transactions (buy/sell orders). If wanting to trade, clients have the option of phoning their dealer or trading electronically. The dealer then goes to the wholesale market, executes the order, and keeps the price difference (in theory at least). Retail dealers concern themselves mostly with providing accurate prices (through their on-line trading platforms), handling client flows, and running stops of course!
Note. If you are not at all familiar with the foreign exchange market or trading in general, then you may well benefit from reading up on the subject before proceeding. There are many valuable books that teach technical analysis, candlestick reading, history of the markets, economic theory, etc. Most of those books give the beginning trader a basic grounding in the financial theory that underpins successful trading, and should be dutifully studied by all traders; this book is not meant to replace any of them. The material covered in this book is strictly centered on sharing professional “buy-side” insights for trading the spot foreign exchange market.
I
Through the Eyes of a Trader
1
On Markets
If one believes in a random universe, a strong case can be made for the fact that any sort of technical analysis and trading tactics are in fact quite useless. Under this scenario, random and unpredictable price movements makes research, analysis, and market timing an exercise in futility, and relegates any kind of strategy (other than buy-and-hold) to a game of chance, not skill. As Burton Malkiel famously noted, “A blindfolded monkey throwing darts at the financial pages of a newspaper can select a portfolio that will do just as well as one carefully selected by the experts”. This market view is supported by the fact that the vast majority of mutual funds fail to beat the broader market year after year, and history shows us that the ten best-performing funds in any one year will drop to the bottom of the pack in the following two to four years, meaning that a manager's outperformance is largely the product of luck, like a gambler's short-term winning streak. Simply put, there is no way to consistently beat the market.
Needless to say, this view of things does not sit well with Wall Street, which preaches that research, analysis, and relying on expertise are the keys to investing (and their business model!). Assuming that we can draw a similar parallel to other markets, then why bother trading? Why spend so much time researching the market and analyzing prices when we could just as simply close our eyes and buy or sell?
Thankfully for traders, although the random walk theory paints a strong case against mutual funds, it is not entirely bullet-proof. Investors consistently fall prey to fear, envy, overconfidence, faddism, and other recognizably human imperfections that make markets not only inefficient but predictably inefficient. In the short run, recognizable patterns are indeed visible in the stock market. Bubbles are created, and then burst. If the DOW goes up one week, it is more likely to go up the next week. In the long run all of these moves smooth themselves out, but in the short run, predicting and trading these constant adjustments can actually make for quite a profitable proposition. Through research and analysis we can visually identify these inefficiencies and market anomalies in charts, and then trade their expected outcomes. The point in trading is therefore not to forecast the future events themselves, but rather to predict and profit from their consequences instead.
Stock market bubbles tend to be of similar length, duration, and size. The chart patterns are similar since the impetus behind them is the same (low borrowing costs, greed, and overconfidence). “This time it's different . . . .”
The day the financial community realized exactly how imperfect a science it practices was 19 October 1987. On this “Black Monday” US stock markets managed to drop an incredible 22.6 % for no apparent reason, which proved especially shocking to the brilliant mathematical minds that had spent their academic careers solving most of the puzzles surrounding proper pricing and valuation. By the late 1980s it seemed that markets had finally been “figured out” and trading was no longer the realm of risk-hungry cowboys as technology quickly came to replace the gut in pricing (and trading) decisions. Yet in light of all this, the world's biggest and most sophisticated market still managed to shed nearly one-quarter of its value in one day and on no news, putting into question even the most basic financial assumptions. By noon of that day, IBM's stock stopped trading in the face of only sell orders; literally no one wanted to buy. If a stock is only worth as much as someone is willing to pay for it, did this mean that IBM's stock was, at least for the time being, worthless? What exactly was going on? How could we call the market rational and efficient, let alone figured out?
The fact that this event now seems as distant as the stock market crash of 1929 is evidence of just how much we have moved forward, yet many of the underlying reasons behind the crash are still around today and the trading lessons behind these underline the major differences from what we may call the “academic” view of markets and the trader's view.
A Little Market Theory
As we know, professors love formulae, and perfect formulae make for perfect markets. The problem with this kind of oversimplified interpretation of the market is that it tends to marginalize an individual's contribution, while traders realize that sometimes individual actions are actually the driving force behind markets. Why did people sell on Black Monday? It was because everyone else was selling; it is as simple as that.
The problem for the academic world is that while real risks (interest rates, stock prices, etc.) are easy enough to understand, perceived risks are much harder to quantify and are therefore generally ignored. After all, how on earth can we measure Joe Investor's sensitivity to risk when on the one hand he spends days researching and analyzing which car to buy and on the other hand he buys Pets.com stock on a friend's tip?
Over the years traders have learned to get a grasp on this tricky subject, and some interesting things about the perception of risk have emerged. We know that risk tolerance decreases once the market is fully invested, which is why asset bubbles build up slowly and deflate violently. We also know that our brain is hard-wired to shy away from pain and regret, thus making us sell our winning stocks while holding on to losers hoping that they will turn around. How many dead internet stocks do you still have in your portfolio?
What we now know is that markets are efficient, but they are not perfectly efficient. The point where buyers and sellers meet does not always reflect “equilibrium”, and the sheer number of arbitrage-hungry hedge funds out there can be taken as an indication of the market's imperfection. Since prices are man-made creations that reflect our biases as much as they do economic reality, markets may stay in a state of disequilibrium for a long time when the very reason for buying (prices going up) in turn leads other people to buy.
Those used to doing the day-to-day dirty work in the markets, the traders, dealers, and “locals” in the pit, have all come to realize that at least in the short run, markets are often manipulated and highly irrational. Psychology matters, fear matters. Momentum often trumps economic fact, and we can be fairly certain that as long as there is human involvement in the financial markets they will continue to exhibit the same erratic behavior patterns as human beings. Logic often takes a back seat to greed and fear since at the end of the day it is the trader/money manager that has his job and bonus to look after.
“A perfect market thinks only of the future, not the past.” The market may not have a memory, but traders certainly do. The eerie similarity between the crash of 1929 and 1987 can probably be attributed to traders in 1987 using the past as a way of predicting the future, unwittingly creating a self-fulfilling prophecy with their actions. (Source: Lope Markets)
Traders that overlook these behavioral aspects end up in trouble when confronted with tumultuous and emotional markets, even if for a brief period of time; hence there is the famous saying, “The market can stay irrational longer than you can stay solvent”. This saying is more true that you can imagine, and the Wall Street graveyard is littered with traders that made money trading rational markets 99 % of the time, yet got wiped out by that irrational 1 %.
Legendary hedge fund manager Julian Robertson found out just how dangerous it can be to fade1 irrational markets when he rationally shorted the tech bubble of the 1990s and turned his stellar $22 billion dollar fund into a mere $6 billion basically overnight. His farewell letter to investors pretty much says it all:
The key to Tiger's success over the years has been a steady commitment to buying the best stocks and shorting the worst. In a rational environment, this strategy functions well. But in an irrational market, where earnings and price considerations take a back seat to mouse clicks and momentum, such logic, as we have learned, does not count for much.
From a trader's perspective, this means that the market is always right. If irrational investors make a bundle on the way up, while rational investors lose their shirts shorting the move, then who is rational and who is not? Markets are not rational or irrational, they just are, and the only view that traders will ever hold sacred is their need for volatility, because it holds the key to their profits. As long as people are buying and selling, short-term speculators are indifferent as to the rationale behind the moves because they know there is money to be made on both sides of any trade. All that traders care about is maximizing their profits by positioning themselves in advance of the next move, while academics often miss the forest for the trees by being so far removed from the trading floors of the world.
1 To fade a move is to trade against the prevailing direction. Fading a move higher would mean selling short into the rally.
2
The Currency Market
Foreign exchange trading has essentially been around since the advent of money, and although the mechanics have advanced somewhat since the time of the money-changers in the temple, it still boils down to the exchange of one currency for another.
Of all financial markets, the FX market can probably be considered to be among the most “pure” in the sense that supply and demand (in the free-floating currencies) is strictly what determines prices. For the most part, the market is unregulated and free of distorting red tape, and the sheer size of the trading volume means that government intervention has little long-term effect on prices. After all, in a market that trades over $2 trillion a day government intervention can only go so far, and at the end of the day it is the two hundred thousand traders around the world that act as Adam Smith's invisible hand in guiding prices.
Since a market this free and liquid is typically hard to out-guess, you would be right to think: “is it even worth trading such an efficient market?” The good news for traders is that the FX market is not as efficient as it may first appear, and the root of this inefficiency can be traced back to the participant's motivation. The FX market has never been a value creator, but rather a vehicle for other transactions. A US portfolio manager buying Japanese stocks or an Italian company acquiring raw materials from Brazil both inadvertently become FX participants, yet the currency part of their transactions are not usually motivated by profit. The portfolio manager simply needs the yen to buy the stocks and the company needs dollars to buy the coffee.
This type of behavior breeds inefficiencies eagerly exploited by more active market participants, and fortunately for FX traders small arbitrage opportunities still abound. Although the market may be very efficient at giving you a price, whether that price is an accurate reflection of the currency's true “value” is another story altogether, which is why good analysis and trading techniques do pay off in the long run.
Research and analysis in FX proves valuable because the currency market is different than Wall Street. The interbank market is by no means a perfect market since information is not freely available, market access is restricted, manipulation takes place, governments intervene, and a large number of participants routinely buy and sell irrespective of profit, which all comes together to turn conventional trading wisdom (such as “let your winners run, cut losers short”) on its head in this mostly range-bound market. The FX market is different than other markets, and if you can find a way to recognize, predict, and exploit these imperfections, then there is a great deal of money to be made. Profitable trading strategies do exist and can be found.
A Select Club
Off-balance sheet earnings are the declared aim of most banks, and spot dealing in FX, which presents high loss potential (as far as price is concerned) but practically no credit risk, falls directly into this category. To understand a bank's motivation for getting involved in this market, all you have to know is that by combining a large FX dealing desk with a decent prop trading group, pretty soon you will be talking about billions in profits. These types of numbers have long made FX the playground of only the biggest and baddest global banks, and because at its core the FX market continues to be a credit market, their dominance is unlikely to be challenged any time soon.
Unlike other markets, an FX transaction is not the exchange of cash for another asset (stocks or oil, for example), but rather the exchange of cash today in return for the acceptance of cash at a later date. The interbank market operates on this somewhat unusual principle, where one party depends on the other to meet their obligation without extending credit to each other. As you may well imagine, when dealing in this way it is crucial to know that your counterparty is of the highest credit standing, lest you be left holding the bag on one side of the transaction. For this reason, big banks prefer to deal with big banks, and smaller fish are essentially shut out of the FX pond. As a result, a small group of commercial and central banks (you can call it a cartel if you wish) has always handled the majority of FX turnover with each other, and for each other.
Technology has managed to open up this tight-knit group somewhat, although not to the extent that you may think. Most banks now either operate their own electronic dealing platforms or provide liquidity to a matching system/prime brokerage platform. Products from EBS, Currenex, FXAll, etc., enable banks to reach a larger client base while still maintaining full control over their risk, yet in the end, who do you think owns most of these platforms anyway? The reality is that the same small group of banks still controls the FX market.
