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The Forex market consists many different categories of participants (Central Banks, Commercial Banks, Large Corporations, Retail Traders, Institutional Traders, etc.)

Institutional Forex Trading

The Forex market consists many different categories of participants (Central Banks, Commercial Banks, Large Corporations, Retail Traders, Institutional Traders, etc.)

 

When we refer to institutional traders we are referring to Interbank Traders such is Banks and Large Investment Firms. Institutional Traders enjoy several advantages over retail traders when trading the Foreign Exchange. These advantages are in terms of lower trading costs (spreads) but sometimes also in terms of better information.

 

Institutional Forex Trading Features

These are some of the special features of the Institutional Forex Trading:

(1) Liquidity directly from Tier-Banks and Proprietary Trading Firms

(2) Best Rates Identification Mechanism

(3) Open order book / Full market depth

(2) Complete anonymity

(3) Low-latency order-execution

(4) Existence of complicated orders

(5) Pre-trade and post-trade transparency

(6) Fast Execution (High-Frequency Trading and low-latency order processing)

 

Institutional Forex Platforms

Institutional Forex Trading Platforms include MT4, Thomson Reuters, Barclays BARX, Orex and some others. These platforms use a fully customizable interface, advanced and integrated charting plus advanced order execution.

(1) » Barclays BARX

(2) » Thomson Reuters Fx Matching

 

Partners Benefits

 

 

Orders Execution and Low-Latency

The speed of execution is a top priority issue for Institutional Forex Traders. Brokers who are focusing on institutional clients spend millions of US dollars to develop ultra-low-latency solutions.

Low-latency is based on:

(i) State-of-the-art technology

(ii) Physical location close to a major exchange

The maximum speed of execution is very important for arbitrage strategies, news-trading strategies etc.

The Role of Liquidity

Institutional traders have access to larger liquidity pools than common retail traders. The liquidity factor is transformed into tighter spreads and therefore into diminishing trading cost. These lower spreads are extremely important for scalping strategies.

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MiFID is the European Markets in Financial Instruments Directive (Directive 2004/39/EC)European Investment Services and Regulated Markets (MiFID)

MiFID is the European Markets in Financial Instruments Directive (Directive 2004/39/EC) and it is active since November 2007, this directive governs the provision of investment services in financial instruments by banks and investment firms and the operation of traditional stock exchanges and alternative trading venues.

 

EU Rules for the Financial Sector

The first set of rules adopted by the EU helped to increase the competitiveness of financial markets by creating a single market for investment services and activities. However, after the 2008 financial crisis it became clear that a more robust regulatory framework was needed to

  • further strengthen investor protection
  • address the development of new trading platforms and activities

 

Markets in financial instruments directive - MiFID

MiFID is the markets in financial instruments directive (Directive 2004/39/EC). In force since November 2007, it is a cornerstone of the EU's regulation of financial markets. It governs

  • provision of investment services in financial instruments by banks and investment firms
  • operation of traditional stock exchanges and alternative trading venues

While MiFID created competition between these services and brought more choice and lower prices for investors, shortcomings were exposed in the wake of the financial crisis.

 

MiFID 2 and MiFIR

In October 2011, the European Commission tabled proposals to revise the Markets in Financial Instruments Directive (MiFID 2) with the aim of making financial markets more efficient, resilient and transparent, and to strengthen the protection of investors.

MiFID 2 Purposes

  • organised trading takes place on regulated platforms
  • rules on algorithmic and high frequency trading
  • improving the transparency and oversight of financial markets (including derivatives markets)
  •  conditions for competition in the trading and clearing of financial instruments

MiFIR Requirements

  • disclosure of data on trading activity to the public
  • disclosure of transaction data to regulators and supervisors
  • mandatory trading of derivatives on organised venues
  • removal of barriers between trading venues and providers of clearing services
  • supervisory actions regarding financial instruments and positions in derivatives

The application date of MiFID II and MiFIR has been extended to 3 January 2018.

 

MiFID and MiFID2 for the Financial/Forex Industry

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