Trading level 2 forex provides one with the access to over-the-counter foreign exchange market. When orders are placed under this condition, they are placed through the forex market makers and not directly. It is either these market maker (which is mostly the case), or other market participants.
WHO ARE THESE MARKET MAKERS AND WHAT IS THEIR BASIC FUNCTION IN FOREX LEVEL 2?
Market makers are broker dealer firms that take the responsibility of holding a specified number of shares of a currency pair in order to facilitate its sales. In other words, these guys buy these securities with their own money, put them out in the market, and expect forex traders to buy them. This is a risky move considering the nature of the forex market. When the trader have to go right ahead to conduct businesses directly with the forex market, it is not considered as level 2 forex, but when a trader goes through a market maker, that is what makes it a level 2 forex. They are also known as the forex level 2 service providers.
The basic function of the market makers is to keep the market liquid. They provide purchase and sales solutions for investors, and this in turn keeps the financial market liquid.
Market makers handle quite a lot of orders often, which is understandably so considering the volume of trades that takes place in the forex market alone.
HOW FOREX LEVEL 2 WORKS
Like was mentioned earlier, the market makers, who run the forex level 2 orders from customers, actually take the risk of buying currency pairs, and then put them out in the market for traders to see and buy. Traders that go through this method of trading the forex market actually get to view a list of participants in the same deal. These lists show the entire bid and ask prices from each of the participants, as well as a detailed insight into the price action.
WHY USE THE FOREX LEVEL 2?
Why go through the market makers to trade the forex market? Here are some reasons for that
1. You have an idea of the type of market participants involved, and the type of buying that is going place; retail or institutional.
2. This can give you an idea of what is happening and what will happen in the market in the nearest future. You can tell when a buyout or some sort of accumulation of commodities is taking place.
3. Usually, there are trades between the bid and ask prices. These trades can tell when a strong trend is about to take place or when it is about to come to an end.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.