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In the not so distant past before communication reached the level it is now, pricing FX transactions was extremely slow and complicated.

For example, slang for the Gbp/Usd rate is "cable. This is because each price was made by cable (or telegraph) and as markets didn't move like they do today it could take the best part of a day to receive a request, make a price and confirm a deal.

Contrast that with todays FX markets where trades take place in milliseconds.

In the City of London, still the worlds largest financial market, there were over 350 banks all with trading rooms. The smallest had one or two traders trading major currencies and a money market dealer handling funding. The largest had a trader for each currency pair and one for each cross (e.g. Usd/Jpy, Eur/Usd & Eur Jpy). The correlation between what happens in the majors and crosses makes this essential in major institutions.

A corporate desk handles all client business and there is often a separate, smaller, trading desk to handle clearing their business.

Now there is also a desk which handles electronic business but a lot of this is covered by the two sided nature of the business.

When you trade fx, it eventually comes to the electronic desk and is aggregated along with every other deal the banks clients are transacting.

The market was structured in a reasonably flat manner in the past with all market practitioners having access to brokers who had live prices from banks who would "support the market".

Voice brokers would relay the prices via a microphone which would be heard via loudspeakers on the traders desk. Voice broking gave dealers a better "feel"for the market as the movement in the market and the volume of business being transacted was often portrayed in the voice of the broker. Interbank dealers dealt far more on instinct that they do now. When the first screen based brokers were introduced, the market became more clinical and less emotional.

As banks started to introduce their own platforms which they gave to tier two banks (non market-makers) and their clients the pyramid effect was born.

Now the markets are driven by liquidity and they have lost in emotion is more than made up by efficiency. The pyramid structure is controlled at the top by maybe ten banks who have the ability to clear large trades amongst themselves. They in turn price markets very aggressively and second tier banks use that pricing for their own business and clients.

Further down the pyramid come the retail clients who still achieve tighter spreads than banks were able to command five years ago.

Liquidity and spread are the main drivers of the forex factory now but it is a more controlled market now.

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