OTC structure is separate market outside the stock market where the price of a security is usually determined by bargaining between investors and brokers. In this article we want to share about how OTC Structure affects self-directed trader.
There are some points like limited access to interbank, no singular exchange rate, no standard data, and forex trading, here is the detail explanation.
 |
| mo ta hinh anh |
Limited Access to Interbank Market
Individual retail traders, most of whom trade in much smaller size compared to those of banks, generally trade through forex brokers instead of directly accessing the interbank market. This aspect of OTC Structure shifts the odds of success against individual traders, especially if the forex broker acts as a market maker. Since traders have to deal directly with their brokers, the latter will usually hold the opposite side of the transactions.
If a trader is bullish on say, the USD/JPY, he or she will go long by buying a specific quantity of USD/JPY from the market maker, who will then effectively be short USD/JPY by selling to the trader. Because of the inherent conflict of interest that exists, this arrangement does not sit well with many individual traders as they fear that the market maker will trade against them, and that is not an uncommon practice in the market making industry.
No Singular Exchange Rate
Exchange rates do differ from place to place, screen to screen, depending on which parties are offering what. Cash transactions take place between countless parties at any one time, and there is no exchange which records all these transactions. For example, while the exchange rate of EUR/USD may show 1.2500/1.2503 on Broker X, the EUR/USD exchange rate on Broker Y may be 1.2505/1.2508 at the same time.
There isn’t a universal absolute exchange rate of any currency pair at any given time. Some independent traders are not even aware of this peculiar aspect of OTC dealings. Since there can be a few different prices for a currency pair at any one time, you may not be able to see what is the best available price if you trade through only one market maker. Generally, though, the rates provided by market makers to retail traders are quite close to the pricing quoted in the interbank market.
No Standard Data
Exchange rates differ from one market maker to another because there is no consensus specified by a centralized market. Different market makers have different rates at the same time although usually not differing by more than a few pips.
A trader would have to accept what is being quoted by his broker unless he compares prices with other brokers. Price charts from different price feed vendor will also look slightly different as they each have their own data source. Although, in general, the currency prices are quite similar.
The Forex Trading Day
Also, being a 24-hour market, boundaries of a trading day are blurred. Traders from around the world are in various time zones. Traders from, say, Singapore would display a different timing from their US counterparts, who tend to display EST (Eastern Standard Timing) on their price charts. As a result, many traders display GMT (Greenwich Mean Time) on their charts, so that a trading “day” commences and ends according to GMT.
In short, the OTC nature of the forex market can be a bane to serious forex traders, who long for price and execution transparency, something which is standard for stock and futures markets. Those information about OTC is available on DIDIMAX’s forex broker.
In DIDIMAX, you can learn in 2 ways, online and offline, then you can choice DIDIMAX as your broker as well because DIDIMAX is the best forex broker now.
