The first step is not to be leeks, starting from understanding foreign exchange quotation transactions

There are many types of foreign exchange market participants in a broad sense. This article will discuss the operating mechanism related to foreign exchange transactions from the perspective of individual traders and centered on individual traders. When a trader trades an order in front of the computer, the order will have a relationship with the following foreign exchange participants.

We have sorted the foreign exchange participants (according to the trader as the starting point). As shown in the figure above, the starting point of this sorting is our traders. We enter this market as market participants and obtain profit from the difference through buying and selling. The products we trade all have a point difference, some of which are a few tenths of a point, while others require a few points of difference. Moreover, there will be slippage during the transaction, and often the slippage appears in the direction that is not conducive to us. This situation is related to the second participant, that is, the Broker trader, who is our account opening place (platform ). Traders provide trading software, accounts, deposit and withdrawal systems, etc. Traders profit from spreads and slippage. The trader gives us a quotation on the software, which already includes the spread, and this spread is the trader's profit.

The platform is the link between individual traders and liquidity providers, and liquidity providers are mysterious players that individual traders generally cannot reach, and they are also the third participant we want to talk about.

Most traders are intermediary platforms, they do not have the ability to quote, and the software data is connected to the port of the liquidity provider. The backer of the mechanism that really provides quotations, really makes foreign exchange transactions active and can complete transactions so quickly is the world's mainstream liquidity provider.

And most of the liquidity providers are large investment banks and commercial banks, because only when you have huge foreign exchange spot reserves, you can issue related derivatives. And these liquidity providers have the pricing power of the market and the decision whether the order is executed or not. The operation mode behind this, the secret behind the euro price jump before the trading software is related to the "last wait and see" system to be mentioned next.

The last wait and see originated from the password-based order in the early years. At that time, banks used "last wait and see" as a risk management mechanism to prevent some potential market risks from occurring.

However, with the vigorous development of electronic trading, "last wait and see" has become a magic weapon for market makers to control the authority of foreign exchange activities and platform operations. They use this mechanism to protect customers from credit risks and delays. We know that there is an arbitrage trading mode in this market - latency arbitrage (delay arbitrage). High-frequency traders love to use latency arbitrage, and liquidity providers use last-look to counter high-frequency trading firms.

The so-called "last wait and see" means that liquidity providers have the right to "refuse orders" at any time. This unequal relationship maintains the balance of the spot market in a sense.

In recent years, with the continuous advancement of technology, liquidity providers are also gradually updating the "last wait and see" system. There have been endless calls to stop in the market. However, liquidity providers have pricing power, and the "last wait and see" system is difficult to abolish.

But for individual traders, there is no need to worry too much, because this type of rejection is mainly against high-frequency trading and malicious trading. When we trade normally, it will not have any impact. It is not harmful to know more about the market operation mechanism. Starting from the market structure, you need to understand that the quotation market can "reject orders", so it is very difficult for you to take advantage of technical advantages to do arbitrage. It is more suitable for the spot foreign exchange market to choose a regulated platform, a "channel trader" with a small spread, use 100 times leverage, do swing operations and break through the trend market.