Hello,
I am beginner in trading and I don’t really understand what are the Electronic Brokery Service and Reuters Dealing 3000- Spot Matching. What is the difference between them (except spread) what are they used for and how are they related to brokers like IC Market, Admiral,Dukascopy etc?
Reuters and Electronic Broking Service (EBS) were the first electronic brokers for the interdealer FX market.
They were the first electronic brokering systems for trading spot FX that let dealers enter limit orders (“CLOB”) and trade anonymously. Trading was carried out through a network of linked computer terminals among the participating FX dealers.
It’s important to note that electronic trading was dealer-to-dealer (“D2D”) only. (Electronic dealer-to-customer (“D2C”) trading wasn’t available until years later.)
By the end of the 1990s, EBS and Reuters (now Refinitiv) dominated interdealer trading in the major currencies. As they rapidly gained popularity, their quotes became the reference prices for the entire FX market.
Trading in certain currencies became very highly concentrated on only one of the two systems:
- EBS was mainly used for the EUR, JPY, and CHF currencies.
- Reuters was mainly used for the GBP, AUD, CAD, and the Scandinavian currencies.
how are they related to brokers like IC Market, Admiral,Dukascopy etc?
They’re not.
Traditionally, in the FX spot market, trades were made in a two-tier market: the customer market and interdealer market.
The first tier is the interdealer market. This is where dealers trade internally with each other.
The interdealer market consists of large multinational commercial banks and other financial institutions whose dealers trade either directly among themselves or with the help of brokers (like EBS and Reuters in the past, but nowadays, there many other venues).
Banks employed “FX dealers” who worked the bank’s “dealing desk”.
An FX dealer is typically responsible for buying and selling a particular currency or a small group of currencies. They would usually hold an inventory of the currency (or currencies).
The dealers are there to facilitate trades on behalf of their customers. A large bank could have thousands of customers across the globe.
This is why EBS (now known as “EBS Market”) and Reuters (now known as “Refinitiv Matching”) are called interdealer platforms (“IDPs”).
Are retail FX brokers part of the customer market then?
Usually not. Most aren’t big enough to trade and don’t have the credit relationships needed. Most retail FX brokers are a "customer of the customer "who is able to trade in the D2C market.
Think of this two-tier market as the wholesale market for FX. It’s where FX prices are formed and then propagate across the entire FX market.
And hopefully, the retail FX broker you use is quoting you prices that are close to these prices.
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Thank you for reply.
So, we as retail traders aren’t directly connected with EBS and Reuters and there are two tiers on market who trade to each other but both of them are on the Forex.
In the past, it was possible to delineate the market into separate tiers. The structure of the FX market has fundamentally changed with the lines becoming blurred between the characteristics of D2D and D2C venues. Due to the electronification of the FX market, trading is now fragmented across many venues.
But this is the institutional (wholesale) side of the FX market and has nothing to do with retail traders (aside from benefiting from tighter spreads due to increased competition among venues which propagates across the market).
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Ok thank you.