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Last Look (foreign Exchange)
Last look is a trading practice where the liquidity provider (LP) provides a quote rather than a firm price into the trading system or execution venue. Last look venues are often used to conduct trading on foreign exchange market The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...s (FX) for retail foreign exchange trading. Procedure When a request to trade against the quoted price is received, the LP may hold the request for some time, execute the trade (fill) at the price quoted, offer an alternative price (requote) or decline to trade (reject). Firm liquidity venues on the other hand operate an open central limit order book where trades are matched without optionality. Last look's quote-driven behaviour is commonly argued to be necessary to protect the liquidity providers in a fragme ...
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Market Maker
A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the '' bid–ask spread'', or ''turn.'' The benefit to the firm is that it makes money from doing so; the benefit to the market is that this helps limit price variation ( volatility) by setting a limited trading price range for the assets being traded. In U.S. markets, the U.S. Securities and Exchange Commission defines a "market maker" as a firm that stands ready to buy and sell stock on a regular and continuous basis at a publicly quoted price. A Designated Primary Market Maker (DPM) is a specialized market maker approved by an exchange to guarantee that they will take a position in a particular assigned security, option, or option index. In currency exchange Most foreign exchange trading firms are market makers, as are many banks. The foreign exchange market maker both buys foreign currency from clients ...
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Foreign Exchange Market
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the credit market. The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Since currencies are always traded in pairs, the foreign exchange market does not set a currency's absolute value but rather determines its relative value by setting the market price of one currency if paid for with another. Ex: USD 1 is worth X CAD, or CHF, or JPY, etc. The foreign exchange market works ...
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Retail Foreign Exchange Trading
Retail foreign exchange trading is a small segment of the larger foreign exchange market The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspec ... where individuals speculate on the exchange rate between different currencies. This segment has developed with the advent of dedicated electronic trading platforms and the internet, which allows individuals to access the global currency markets. In 2016, it was reported that retail foreign exchange trading represented 5.5% of the whole foreign exchange market ($282 billion in daily trading turnover).Triennial Central Bank Survey
(April 2016), Bank for International Settlements
Prior to the deve ...
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Transaction Cost Analysis
Transaction cost analysis (TCA), as used by institutional investors, is defined by the ''Financial Times'' as "the study of trade prices to determine whether the trades were arranged at favourable prices – low prices for purchases and high prices for sales". It is often split into two parts – pre-trade and post-trade. Recent regulations, such as the European Markets in Financial Instruments Directive, have required institutions to achieve best execution. Pre-trade Pre-trade analysis is the process of taking known parameters of a planned trade and determining an execution strategy that will minimize the cost of transacting for a given level of acceptable risk. It is not possible to reduce both projected risk and cost past a certain efficient frontier, since reducing risk tolerance requires limiting market exposure and thus trading faster. In this situation, market impact cost is much greater than for trades that accept greater risk and are executed more slowly. Effect on Fin ...
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