I am new to the field, and trying to understand structure of spot currency market.

As it is stated here,

Quote-Driven Market ... only displays the bid and asks offers for a security from designated market makers, dealers, or specialists. These market makers will post the bid and ask price that they are willing to accept at that time. Quote-driven markets are most commonly found in markets for bonds, currencies, and commodities.

Does this mean that limit order books offered by forex brokers that we see all consist of limit orders quoted by each broker? My understanding is that when we, retail traders, place limit orders, they are going to be displayed as a part of the order book as well, so that makes us market makers too, thus it's an Order-Driven market?

Also some forex brokers don't even have their own dealing desks (NDD) as opposed to DD brokers, and I believe such trades via NDD is entirely an Order-Driven?

I am confused, what exactly makes spot forex market Quote-Driven?


2 Answers 2


If you use a retail platform, they do not make markets. For example, CMC markets gets the FX rate from liquidity providers like Deutsche Bank, JP Morgan, Barclays, Goldman, UBS, Citibank and HSBC. You should find a similar logic with others.

If you setup a limit order it will simply sit there and get filled on your behalf (aims to fill at the best available price) if the price reaches that level. What you will see on retail market limit order books will be (in my opinion) entirely useless to gauge the buy and sell interest in Forex markets. It will show you what the retail investors using this platform do, but that will be like a sand grain on a beach compared to the size of the FX market, which according to BIS is $6.6 trillion per day.

Spot FX is OTC (over the counter). You request a quote and get a response from a counterparty. Sometimes it is a directly executable (always on) feed of bid ask quotes but the general idea is that you indicate that you want to trade, and the counterparty quotes the price you get. There are some exception like Refinitiv's FX Matching which is essentially a single order book but these still consist of central limit order books (CLOBs) which enable participants to “make an offer” (e.g. place a bid in the market).

My explanation above was misleading. The last paragraph is not retail trading. A constant always on executable quote is almost the opposite of an ECN. It is a direct connection to the market maker(s) of your choice were you click on the quote if you decide to trade (hence accept the quoted price).

Generally, I think you overcomplicate things. FX (especially spot) is largely unregulated (out of scope of MiFID II, MAR, EMIR and MiFIR, not covered under CFTC or the SEC...). Trading is predominantly OTC and dominated by large banks. Retail is according to BIS Table 5 3.3% of total spot trading (66/1987).

As a retail trader you are at the very end of the line. Just like shopping at a super market. Yes, theoretically, the shop decides what to charge for Coca Cola. Realistically, Coca Cola will set the price, and supermarkets simply add a mark-up. Similarly, what your retail broker does exactly is (as long as it is legitimate) essentially almost irrelevant. If they make markets for their clients, it just means they add spreads directly to quotes they receive and do not just pass it on to someone else. Nonetheless, their quotes will be driven by the major banks.

I gave the CMC example, and checked Oanda which also states that they aggregate live prices, in real time, from their liquidity providers. Since I am not familiar with retail platforms, I had to google names for "MM" in retail. Avatrade writes that it charges 'Spread Over Market' which is the Mark-up AVATRADE adds to the Current Market Spread (which will come from their liquidity provider). enter image description here

Forex.com generally offer direct links to their liquidity providers too.

Long story short. FX is (predominantly) a quote driven market and dominated by major banks who quote bid/ask prices. Retail brokers will (no matter what they claim to offer) always fall back to these quotes. Just like Coca Cola decides what the cheapest price for the drink will be. All else is mark-up.

  • $\begingroup$ Thanks for the answer. Just want to clarify a few - So the "counterparty" you are referring to is an Liquidity Provider, regardless of whether a retail broker is DD or NDD? Also, by "directly executable (always on) feed of bid ask quotes", are you referring to an ECN that retail traders could also sometimes participate via certain ECN brokers? $\endgroup$ Commented Jun 2, 2021 at 12:04

To add some colour to the FX market structure: FX used to be a clear two tier market, the closest analogy I can think of is a hub and spoke system with customers interacting with dealers via a quote type mechanism and dealers interacting with each other in a more central limit order book fashion with that order book either maintained by a network of interdealer brokers or different electronic providers like Refinitiv (previously Reuters) FXT or EBS.

The flow used to look something like this. A customer would pick up the phone and call their favourite sales person at their favourite bank to ask to do an outright forward to cover an invoice while discussing the latest game of cricket on the telly. The sales person would mute their phone and shout over to the FX swaps trader and spot trader to get the latest swap and spot prices, quickly add them as required in their head, unmute their headset and announce the quote to the customer between overs of the game. Customer likes the price and decides to trade, sales person shouts this fact over to the traders in question, jots the details down on a deal pad to be electronically captured later and then possibly go for lunch. The trader now has a decision to make, to put the risk on the banks balance sheet and wait for an offsetting trade or to go into the interdealer market to try offset the risk. The options available in the interdealer market are to leave a resting order with a broker at a level or to pay or give a price that is already on the brokers screen (or ask for a price to be found if one was not available or to the traders liking).

All a client limit or stop loss order is in this ecosystem is a delay on the acceptance of the quote from the sales person. You can imagine the order being replicated by the customer constantly asking for a refresh of the quoted price and only accepting it once the price was acceptable aka at the level. But the spread still belonged to bank, as your bid was only filled when it matched the banks offer.

That is how things used to be, now a-days it is not so simple. The introduction of smart order routing, multi-venue aggregation and non-bank market makers like XTX splintered that model. Customers can leave actual resting limit orders on venues like Hotspot or via CME currency futures, dealers aggregate direct bilateral quote feeds from other banks as liquidity sources and some banks allow DMA style algorithmic trading to the interdealer network for client flow. Dealers appear much more like the old customer and customer flow can appear very much like the old interdealer flow in todays FX world.


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