oussama94
05-28-2017, 19:25
Since the foreign exchange market is an over-the-counter (OTC) market
without a centralized exchange, competition between market makers prohibits
monopolistic pricing strategies. If one market maker attempts to
drastically skew the price, then traders simply have the option to find another
market maker. Moreover, spreads are closely watched to ensure market
makers are not whimsically altering the cost of the trade. Many equity
markets, in contrast, operate in a completely different fashion; the New
York Stock Exchange (NYSE), for instance, is the sole place where companies
listed on the NYSE can have their stocks traded. Centralized markets
are operated by what are referred to as specialists, while market makers isthe term used in reference to decentralized marketplaces. (See Figures 1.2
and 1.3.) Since the NYSE is a centralized market, a stock traded on the
NYSE can have only 1 bid/ask quote at all times. Decentralized markets,
such as foreign exchange, can have multiple market makers—all of whom
have the right to quote different prices. Let’s look at how both centralized
and decentralized markets operate
without a centralized exchange, competition between market makers prohibits
monopolistic pricing strategies. If one market maker attempts to
drastically skew the price, then traders simply have the option to find another
market maker. Moreover, spreads are closely watched to ensure market
makers are not whimsically altering the cost of the trade. Many equity
markets, in contrast, operate in a completely different fashion; the New
York Stock Exchange (NYSE), for instance, is the sole place where companies
listed on the NYSE can have their stocks traded. Centralized markets
are operated by what are referred to as specialists, while market makers isthe term used in reference to decentralized marketplaces. (See Figures 1.2
and 1.3.) Since the NYSE is a centralized market, a stock traded on the
NYSE can have only 1 bid/ask quote at all times. Decentralized markets,
such as foreign exchange, can have multiple market makers—all of whom
have the right to quote different prices. Let’s look at how both centralized
and decentralized markets operate