The Institutional Market: An Evolutionary Path followed since 1607

The modern institutional market structure has followed the same evolutionary path, since ‘puts’ were first placed on the Amsterdam Stock Exchange in 1607.

Whilst its modern complexity and applied algorithmic tools have grown out of recognition, the core structure remains the same. They are still created by intermediary market makers who simultaneously buy and sell into the market on behalf of clients.

This resulting core bid offer structure permeates through to every Foreign Exchange transaction conducted around the world, expanding in spread and accumulated charges as it works down through every layer. The resulting implications of this structure are that those at furthest reaches exchanging the smallest amounts, typically the poor are penalised the most.

The hitherto physical inability for buyers and sellers to identify each other in a given market has meant there has been no basis or argument for the existing structure to change.

The Impact of Globalization on Bid Offer

The swelling of Forex and Commodity markets to their vast size combined with a market structure dictating quantity brought to market commands best rates, was always going to result in an extreme tightening of spreads, hence the number of decimal places in these markets. However, the compounding implication being that markets created on infinitesimal margins invariably push towards ever larger trades for profit to be made.

If with increased trade size or exposure comes risk, then the channelling of funds by the global economy through institutions, under the existing structure, inexorably pushes it towards greater risk, leveraging aside.
 

For more about ‘The New Forex Market’ click here.