Found this amazing scr shot in another thread in BP. Is this readily available for retail traders? Or is this exclusive to high end platforms like Bloomberg Terminal or Refinitv?
I’d reply to the thread or write to the dude who posted it but he’s been inactive since Jan 2018.
Depth of market (DOM) in FX is a very misleading concept.
Since FX is an OTC market, there is no way to get an accurate aggregated “picture” of market depth. Your access to liquidity determines how much of the “picture” you can see.
(More details about how the FX market is structured and where retail FX brokers fit are explained in this lesson.)
Retail FX brokers have the least visibility since they are constrained to the aggregated liquidity provided by them by their Prime of Prime (PoP) or solutions vendor.
If a forex broker is displaying a DOM, you are simply seeing what the broker is receiving from its liquidity providers (LPs). It does NOT mean it’s an accurate representation of the overall FX market.
For example, if f you see GBP/USD being offered for 1.62929 for 2.6M, this means nothing except that the broker has arranged for that liquidity to be shown to their customers.
Also, having access to a DOM doesn’t necessarily mean you’ll receive better pricing or execution.
The downsides of STP execution are explained in his lesson. I also recommend reading about order execution here.
Lastly, there are some brokers who offer “prosumer” accounts for retail traders who trade large but aren’t institutional traders.
(By “large”, I mean at least $100M monthly, which is about 1,000 standard lots. While considered puny by institutional standards, that amount of volume is already considered out of reach for most retail traders.)
For example, Forex.com offers an STP Pro account, where you can see DOM and can see multiple levels of real-time pricing.
Given that they are considered one of the largest forex brokers, and have prime broker (PB) relationships that allow them greater access to the institutional FX market, the quotes you see in their DOM would be a closer representation of the overall FX market (versus a smaller broker).
Thank you so much for the detailed explanation. Much appreciated 