Exploring the Different Forex Trading Systems – A Comprehensive Guide

When it comes to forex trading, there is no shortage of trading systems available to traders. These systems are designed to provide traders with a method and framework to make buy or sell decisions in the forex market. In this blog post, we will take a closer look at the three main types of forex trading systems: broker-based trading, direct dealing, and matching systems.

  • Broker-Based Trading: 
    Foreign exchange brokers play a crucial role in the forex market. They act as intermediaries between buyers and sellers, optimising prices and executing orders on behalf of traders. In broker-based trading, traders can hear all the prices being quoted, but the amounts and the names of the banks showing the prices are anonymous. The anonymity of the banks ensures a fair and efficient market. Brokers often charge a commission that is equally paid by the buyer and the seller, and they show different prices based on their market analysis and expectations. They always show the highest bid and the lowest offer to provide an optimal spread. Furthermore, brokers can provide traders with access to a broader selection of banks, increasing liquidity in the market.
  • Direct Dealing:
    Direct dealing involves trading directly with other banks or market makers. This type of trading relies on a system of trading reciprocity, where banks expect each other to make a price when called upon. In the past, phone dealing was the primary method for direct dealing, but it was error-prone and slow. The introduction of dealing systems in the mid-1990s revolutionised direct dealing. Dealing systems are online computers that link banks around the world on a one-on-one basis. These systems offer speed, reliability, and safety in executing trades. Traders have continuous visual contact with the information exchanged on the monitor, making it easier to process information quickly.
  • Matching Systems:
    Matching systems are anonymous platforms where individual traders deal against the rest of the market, similar to the broker-based market. However, matching systems differ in that there are no individuals bringing prices to the market. Liquidity may be limited at times, but matching systems are well-suited for trading smaller amounts. These systems replicate the speed, reliability, and safety of dealing systems. Credit lines are automatically managed by the matching system, with traders inputting the total credit line for each counterparty. When the credit line is reached, the system restricts dealing with that particular party until the credit line is restored.

Each trading system has its advantages and limitations based on market conditions and individual preferences. Some traders prefer broker-based trading for its access to a wide range of banks and liquidity, while others opt for direct dealing or matching systems for their speed and anonymity. Ultimately, traders must select a trading system that aligns with their trading strategy and preferences.

In conclusion, trading forex requires a sound understanding of the different trading systems available. Broker-based trading, direct dealing, and matching systems all offer unique features that cater to different trader preferences. By exploring and understanding these systems, traders can make well-informed decisions and enhance their trading strategies in the forex market.


This information is not considered investment advice or an investment recommendation, but instead a marketing communication. iFX is not responsible for any data or information provided by third parties referenced or hyperlinked, in this communication.

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