Market Structure
Although we track the start of the Forex in the early 70's, the lack of a central marketplace for transacting foreign exchange made difficult for importers and exporters to accurately track daily movements in the currencies. In fact they had no prior experience with floating exchange rates and therefore no in-house expertise. They were at the mercy of the banking industry, specially the big banks for whom foreign exchange became a huge source of revenue.
The first foreign exchange brokers came on stage in the mid 70's to offset a significant customer foreign exchange business for medium and small banks, which needed continuous exchange rates in the major currencies.
Initially the foreign exchange brokers installed direct lines to all the banks willing to participate. Generally a major bank made a rate and the brokers showed the rate to all the banks at about the same time. The first bank to deal on the rate completed a transaction. The others waited for the next rate. Any bank could make a rate; show a bid or an offer. Soon, with the aid of new technologies, the brokers became quite sophisticated and efficient at putting together a continuous two-way price and using the banks as their primary liquidity providers. interbank market, history
Although we track the start of the Forex in the early 70's, the lack of a central marketplace for transacting foreign exchange made difficult for importers and exporters to accurately track daily movements in the currencies. In fact they had no prior experience with floating exchange rates and therefore no in-house expertise. They were at the mercy of the banking industry, specially the big banks for whom foreign exchange became a huge source of revenue.The first foreign exchange brokers came on stage in the mid 70's to offset a significant customer foreign exchange business for medium and small banks, which needed continuous exchange rates in the major currencies.
Initially the foreign exchange brokers installed direct lines to all the banks willing to participate. Generally a major bank made a rate and the brokers showed the rate to all the banks at about the same time. The first bank to deal on the rate completed a transaction. The others waited for the next rate. Any bank could make a rate; show a bid or an offer. Soon, with the aid of new technologies, the brokers became quite sophisticated and efficient at putting together a continuous two-way price and using the banks as their primary liquidity providers. interbank market, history