In the previous component, we’ve looked at the dynamic that goes on between brokers and liquidity providers, and we’ve seen where the flow of quotation actually originates from.
Now let’s take a closer look at exchange rate pricing and see why it actually differs from one broker to another.
As we’ve mentioned previously, there are no official exchanges for trading currencies, because they are traded in the over-the-counter market. This explains why there is no official global exchange rate.
The exchange rates that you see in the news and on the Internet come from various sources, but when you decide to open a trade, the exchange rate will almost always be different, because first of all dealers set their prices according to the buy and sell orders that they are currently receiving.
Second of all, prices are also dependent upon the flow of quotations received from the liquidity providers on the interbank market.
Consequently, different dealers will report slightly different rates. Arbitrage plays its role here in eliminating major discrepancies between the different markets.
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