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Where are Retail Forex Traders Trading?

Let’s continue our discussion from yesterday on where are retail forex traders are trading?

The rise of electronic trading in FX resulted in an explosion of trading platforms and electronic execution venues.

We know these platforms as interdealer (IDP), single-dealer (SDP), and multi-dealer (MDP) platforms.

However, with the rise of venues such as electronic communication networks (ECNs), application programming interfaces (APIs), and API aggregators, the distinction among these traditional segments has started to blur together and become less clear.

In general, trading venues are where different market participants can come together and trade with each other.

Trading Venues

When trading on one of these islands (trading venues), market participants must abide by the island’s rules.

The island runs a marketplace that facilities trades between market participants. Some even provide anonymous trading where you can submit orders without revealing your identity to other traders.

For example, a buyer wants to buy 10 million units of USD/JPY at 110.00.

And a seller wants to sell 10 million units of USD/JPY at 110.00.

Here, they matched the orders up.

All without revealing the identity of either buyer or seller.

As you can see, there is not one single island where ALL trading takes place.

And prices that traders buy and sell are unique to each island.

Example 1

For example, if a ship were to “island hop”, it might find on one island, the ask price for USDJPY is 110.00, while on another island, the ask price is 110.01.

The FX market is fragmented, meaning the USD/JPY market on one trading venue is separate from other trading venues. Each currency pair will have its own price, liquidity, and trading volume depending on the venue.

FX trading occurs in many places all at once.

So there really isn’t a single “FX Market”. It’s a bunch of different markets that comprise the “FX Market”.

If you think about it, the “FX Market” is really a NETWORK of a bunch of different places to trade, rather than a single place.


Islands differ in size.

The size represents the amount of trading volume that occurs on an island.

Different boats trade on different islands.

While some boats are rich enough to be able to trade on any island, most aren’t.

Depending on the island, only certain boats are allowed.

Example 2

For example, there are boats that are so rich that they actually own their very own island!

If a boat owns an island, no other large boats (banks) are allowed.  Only special, smaller boats (clients of the bank) can participate.

We know these types of islands as “single-dealer platforms (SDPs)”.

Examples of SDPs and their owners are Autobahn (Deutsche Bank), BARX (Barclays), Cortex (BNP Paribas), Neo (UBS), and Velocity (Citi).

Which is fine by most of the large boats, since they also own their very own exclusive island anyway.

Another example, the two big islands in the middle, only the biggest boats are allowed to trade there.


The people who trade on these big boats are called dealers.

So on these islands, dealers trade with each other in large quantities.

We know this as the “interdealer market”.

The prefix “inter” means “between” or “among”.

We also known the interdealer market as the “interbank market” since most dealers work for large multinational commercial banks that serve global clients.

These huge banks are also known as “bulge bracket” banks.

The “islands” in the interdealer market are known as “interdealer platforms” (IDPs). which are electronic trading platforms where non-disclosed (anonymous) trading occurs in the interdealer market. Examples of IDPs are EBS Market and Refinitiv Matching.


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