Currency Price Making

Beginner Questions
1

The question is pretty simple but I haven’t found the answer so far:
What is the mechanism of price making for a currency in Forex?

I know that the price is always a market price, it is established by demand and supply for every moment at the market. Like for any product the price is in most cases established by the market, but it’s the seller who is fixing the price according to the market conditions. So who is making the price for a currency? It’s obviously not the broker.

I guess it is a self-regulated process. For example, the news come out and GBP becomes a desired currency. Now more and more people are willing to buy GBP and less want to sell. Demand exceeds supply and the price has to go up to equate demand and supply. But how does it actually work? There should be some real-time mechanism that receives and calculates all offers to buy and sell at every moment of time, right? This is just how i suppose this thing should work, probably much more complicated than that.

Let me know where I can get more info about it, I’m really interested.
Thank you

2

I was wondering the same thing…plus I’m also wondering from who are we borrowing the money to trade,because the margin that we use got nothing to do with the trade…:confused:

3

All markets (non-financial ones) work the same way. Buyers set prices at which they are willing to buy (bids) while sellers communicated prices at which they want to sell (ask/offer). In the markets, those folks are normally called the market makers. Those of us who trade retail will either hit the bid (sell at the bid) or lift the offer (buy at the offer).

The market makers in forex are primarily the major banks as part of the inter-bank market, though the brokers also set rates too (generally based on the banks, though). They are the main ones responding to the supply/demand for a currency pair and making adjustments to prices.

Hope that helps.

4

that makes sense, do they (market makers) trade currencies for profit also?

5

For the most part, market makers operate to provide liquidity. They are generally on both sides of the market and seek to profit from the spread (buy at the bid, sell at the offer), not by holding positions.

6

In practical terms the borrowing of the short currency and despositing of the long one you do as part of the trade is done with your broker/dealer.

7

In other words,we borrow money from the broker to do trade right?Does that means the broker has a huge amount of capital?:rolleyes:

8

A broker should have a decent amount of capital, but more important is that it have a good line of credit with banks on the inter-bank market with whom it trades (aggregating all customer positions and offsetting them).

9

Every broker exactly have big amount of capital. Except for white label broker. Broker that do not have huge capital, i can guarantee they will collapse soon. I’m salute for Liteforex broker, this broker very responsible to theirs clients, they would pay back all money if the fault was from companies.