We are continuing our discussion of where retail forex traders actually trade.
Fortunately, there are special types of boats that have an existing prime broker relationship with a large boat and offer a service to these smaller brokers that allows them to “piggyback” off this relationship.
This special type of medium-sized boat is known as a “Prime of Prime” or “PoP”.
Prime of Prime (PoP) refers to a firm that has an account with a Prime Broker (PB) that offers its services to other market participants, such as forex brokers.
PoPs bridge the gap between the institutional and retail FX markets by enabling retail forex brokers to leverage the PoP’s credit relationships with its PBs.
The PoP allows the smaller retail broker to trade through it.
Another way for smaller retail forex brokers to be able to trade with the “big boys” is to “piggyback” off a larger retail forex broker who has an existing PB relationship.
So if a retail forex broker is one of the tiny boats (more like rowboats and kayaks), where do you, the retail forex trader, fit in this picture?
“Aren’t I a boat?” you might ask.
As you just saw, it’s already difficult enough for retail forex brokers themselves to get access to the FX market.
If other ships already deem them too risky to trade with them directly without some sort of chaperone (PB or PoP), why would they want to deal with individual retail forex traders?
“So if I’m not a boat, what am I?” you might then ask.
A retail forex trader is NOT a boat
Your retail forex broker is a boat. But…
YOU are in an aquarium on their boat.
Retail forex traders do not trade in the “market”.
Your broker creates its own market for you to trade in.
You trade with, and ONLY with, your forex broker.
When you enter an order, it is your broker who takes it.
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