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There is no single unified foreign exchange market. Due to the over-the-counter nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is no such thing as a single dollar rate - but rather a number of different rates (prices), depending on what bank or market maker is trading. Retail forex brokers or market makers handle only a fraction of the total volume of the foreign exchange market. forex All firms offering foreign exchange trading online are either market makers or facilitate the placing of trades with market makers. The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, which are displayed at the dealing desk, are adjusted to incorporate spreads (so that the market maker will make a profit) before they are displayed to retail customers. forex trading Prices shown by the market maker do not necessarily reflect interbank market rates. Arbitrage opportunities may exist, but retail market makers are efficient at removing arbitrageurs from their systems or limiting their trades. A limited number of retail forex brokers offer consumers direct access to the interbank forex market. But most do not because of the limited number of clearing banks willing to process small orders. More importantly, the dealing desk model can be far more profitable, as a large portion of retail traders' losses are directly turned into market maker profits. The income of a marketmaker that offsets trades or a broker that facilitates transactions is limited to transaction fees (commissions). |