One of the great challenges facing the institutional forex trading market is the rise of the Internet and Internet-based trading platforms. These changes are already challenging the turf of institutional investors and the way they conduct foreign exchange business. For investors who study foreign exchange knowledge, these points must be known.
In terms of electronic brokerage, systems such as EBS and Reuters already provide computer platforms where bank traders and traders can enter their prices directly into the computer without broker quotes. This includes the process of automatically collecting prices from all relevant banks.
And, because these platforms are responsive, prices are not just indicative, but actual transaction prices. This correspondingly speeds up the process of price discovery and enhances the overall transparency of the market while reducing costs.
There is a growing view in the industry that computers will take over more of what brokers have done in the past, and that new types of traders and trading platforms will emerge in the future. Here we give you a brief introduction to dark pool transactions.
Dark pool transactions are large transactions conducted by financial institutions that are separate from exchanges and therefore anonymous. The fragmentation of financial transactions into separate and competing platforms and marketplaces, and the overall increase in electronic trading has given rise to dark pool trading. Such transactions are normally done through private transactions or directly between market participants.
One advantage of dark pool trading for institutional traders is that the efficiency is improved, which is better than the open limit order on the exchange, and there is no need to reveal their trading behavior to others. Therefore, through anonymous transactions, people are prevented from identifying their identities and intentional adverse situation.
Although the forex market is primarily an over-the-counter or direct counterparty market, the issue of dark pool trading is less of a concern in this market than it is in the stock market. Even so, electronic (and virtual) exchange and brokerage services have become a big deal in a market that has more choices and more challenges.
