You are serious about trading forex—studying charts, spotting setups, and planning entries. But if you do not understand how the market structure actually works, then you can not expect consistent results.
Why? Because structure defines everything: who you’re trading against, how your orders get filled, and why prices move the way they do.
So, what is the forex market structure? Just to be clear, it is not merely made up of technical highs and lows. In fact, it is the global system of participants, institutions, brokers, and technologies that make trading possible.
In this guide, you’ll explore what is forex market structure, who shapes it, how execution models affect your trades, and why electronic trading changed everything.
What Does Market Structure Mean in Forex?
Forex market structure refers to the layered system that defines who trades, how trades happen, and where prices come from in the currency market. Unlike centralized stock exchanges, the Forex market operates in a decentralized, over-the-counter (OTC) environment.
There is no single location or exchange where all trades happen. Instead, the structure forms a hierarchical network with multiple tiers.
We can say that the Forex market has a cascading structure, which allows it to function 24 hours a day with unmatched global reach and liquidity. But it also means that access, execution quality, and pricing vary widely depending on where a participant stands in the hierarchy.
How Is the Global FX Market Organized?
The global Forex market functions without a central exchange. It is a decentralized over-the-counter (OTC) system, which means trading happens through a web of electronic communication, across multiple financial institutions, brokers, and platforms. No single entity governs the entire process.
The organization of the FX market can be explained through distinct tiers of market access and function. Each tier has a specific role in shaping liquidity, price formation, and execution flow.
Tier 1: Interbank Market
This is the top level of the Forex market. It includes Tier 1 liquidity providers, mainly major commercial and investment banks such as JPMorgan, Citi, Goldman Sachs, Deutsche Bank, HSBC, and UBS.
All these institutions quote bid-ask prices and trade large volumes directly with each other. They set the foundational exchange rates that trickle down to all other participants. Their transactions are often executed on private interdealer platforms like EBS (Electronic Broking Services) and Reuters Matching.
You should also note that tier 1 operates on credit relationships, meaning only trusted institutions with sufficient credit lines can transact here.
Tier 2: Prime Brokerage and Non-Bank Liquidity Providers
It should be clear that not every institution can access Tier 1 liquidity directly. That’s why prime brokers are there to make it easier.
A prime broker is a large bank or firm that extends its credit lines to hedge funds, proprietary trading firms, and smaller financial institutions. These clients route their orders through the prime broker, which gives them indirect access to interbank prices.
Simultaneously, non-bank liquidity providers (NBLPs) like XTX Markets and Virtu Financial also operate here. They are high-frequency trading firms that now make markets themselves—challenging traditional banks.
You should also know that the participants often use aggregators, smart order routing, and low-latency execution systems to access the best pricing from multiple sources.
Tier 3: Multilateral Trading Facilities (MTFs) and ECNs
Multilateral Trading Facilities (MTFs) and Electronic Communication Networks (ECNs) serve as execution venues for both banks and institutions. Currenex, HotspotFX, Integral, and FXall are the top examples. Each platform aggregates liquidity from multiple providers and match buyers and sellers anonymously. Their execution models include central limit order books (CLOBs) or request-for-quote (RFQ) systems.
Corporate treasuries, asset managers, and institutional clients often use MMFTs and ECNs for transparent execution and competitive pricing.
Tier 4: Retail Brokers and Dealer Desks
This layer connects the Forex market to individual traders and smaller businesses. There are two types of brokers:
- STP/ECN Brokers who use straight-through processing (STP) to send client orders directly to liquidity providers, earning only a commission.
- Market Makers (B-Book Brokers) who internalize trades, taking the opposite side of a client’s position. They earn from spreads and potential client losses.
Retail Forex brokers offer platforms like MetaTrader 4/5 and cTrader, where traders place orders. It is also worth noting that retail brokers may use liquidity bridges to connect to Tier 2/3, but most retail trades never interact with true interbank markets.
Tier 5: Retail Traders
At the base are retail traders, who access the market through the platforms and pricing feeds provided by their brokers. Retail traders do not interact directly with market depth or interbank pricing. Their quotes often include markups (wider spreads) and may have execution delays or slippage.
However, advanced traders can choose ECN accounts or DMA (Direct Market Access) setups to get closer to real pricing.
What are the Layers of Forex Market Participants?
The Forex market includes several participant layers, each performing a distinct function within the trading ecosystem:
- Central Banks
- Interbank Dealers
- Institutional Traders
- Corporations
- Retail Traders
Central banks lead the top tier. Institutions like the Federal Reserve, the European Central Bank, and the Bank of Japan conduct currency interventions to stabilize national economies. Their actions revolve around managing monetary policy, foreign reserves, and exchange rates. Such entities do not enter the market for profit. Instead, their influence stems from macroeconomic mandates and national policy implementation.
Next in the structure, interbank dealers handle the largest share of daily currency transactions. Global banks such as Citibank, JPMorgan, and Deutsche Bank operate within this layer. These firms provide liquidity, quote bid-ask prices, and maintain the infrastructure through electronic platforms like EBS and Reuters Matching. By acting as market makers, institutional banks define core pricing activity and maintain spreads through order flow management. Their operations shape most of the real-time pricing visible to downstream participants.
Institutional speculators follow just below in the structure. Hedge funds, investment firms, and proprietary trading houses use the Forex market to achieve returns through macro strategies, interest rate differentials, and statistical arbitrage. Many of them access liquidity via prime brokerage agreements or electronic communication networks (ECNs). It is worth noting that this group generates substantial volume and frequently engages during major news releases, directional breakouts, and rate adjustments.
Next comes corporate entities which hold another key place within the structure. Multinational firms access the market to convert currencies for trade settlements, international payrolls, or acquisitions. Exchange-rate exposure often requires hedging through spot contracts, forwards, or options. A Japanese carmaker buying parts from Germany may need to exchange yen for euros. Well, their activity rarely reflects price speculation, but their volume contributes to short-term fluctuations and liquidity demands.
Retail participants form the base of the structure. Individuals trading through platforms such as MetaTrader or cTrader engage through broker intermediaries. These participants lack direct access to liquidity pools or institutional pricing. Brokers may route trades through STP models or internalize orders using B-book configurations. Although retail volume makes up a small fraction of total daily turnover, it contributes significantly to the broader market’s behavioral dynamics, especially around technical levels, news events, and intraday volatility spikes.
How Do Different Execution Models Shape Structure?
The Forex market uses different ways to process trades, called execution models. These models affect how orders reach the market, how prices appear on your screen, and how brokers handle trades.
The main types of execution models include A-Book, B-Book, and Hybrid models.
You must understand execution models so you know where you stand in the overall structure. Are you trading inside a closed system? Or is your order part of the wider market? The answer affects how you interpret slippage, spreads, speed, and strategy performance.
In the A-Book model, the broker sends your trade directly to the real market. This could be through a liquidity provider like a big bank, or through an ECN (Electronic Communication Network). The broker does not take the other side of your trade. Instead, they pass it on, and the market decides how it gets filled. Because the trade goes to the wider market, you may see slippage, especially during fast-moving news. Prices often come from many providers, so spreads can change quickly. It is important for you to note that the A-book model connects you to the larger structure of the FX market—closer to the interbank level.
In the B-Book model, the broker does not send your trade anywhere. Instead, they handle it inside their own system. The broker becomes your counterparty—when you buy, they sell to you. Since the trade stays inside, you get instant execution with fewer price changes. But this model doesn’t link you to the real market. The price you see is set by the broker, not by external buyers and sellers. Many brokers use risk controls to manage this setup, but it still creates a structure that’s separated from the broader market.
Some brokers use a Hybrid model as they mix both styles. Smaller or low-risk trades might stay inside the broker’s system (B-Book), while bigger or more consistent traders get sent to the real market (A-Book). The decision often depends on how much you trade, how often you win, and what kind of strategy you use.
So, it’s clear that all execution models shape the Forex market structure from the bottom layer up. Retail traders using B-Book brokers never touch the wider market. Their trades don’t affect real price levels. Traders using A-Book brokers take part in the larger market flow, even if only indirectly. See, this flow helps form price movement, volatility, and liquidity.
How Has Electronic Trading Transformed Forex Structures?
Electronic trading has deeply reshaped how the Forex market functions. Before the late 1990s, most trades happened through voice brokers, phone calls, and manual dealing rooms inside major banks. Price discovery, order matching, and liquidity access relied on personal relationships and slow communication. Only large institutions, such as Tier 1 banks, controlled most of the volume and price flow.
All this changed with the introduction of electronic communication networks (ECNs) and multi-dealer platforms like EBS (Electronic Broking Services) and Reuters Matching. These systems allowed banks to quote, match, and execute trades electronically. Basically, this shift reduced transaction costs, improved price transparency, and expanded access beyond the traditional interdealer core.
More importantly, non-bank liquidity providers and algorithmic trading firms entered the market. Each entity could operate at high speed, provide competitive bid-ask spreads, and challenge traditional bank dealers. The research paper “Foreign Exchange Market Structure, Players and Evolution” (King et al., 2012, Wiley Handbook of Exchange Rates) showed how market concentration rose at the top while new players emerged at the edges.
Retail trading exploded in the 2000s, thanks to online platforms and MetaTrader terminals. Brokers could now connect ordinary traders to live FX price feeds. Retail flow, once invisible, became a recognized layer—though still small in volume. Electronic trading enabled price aggregation, liquidity fragmentation, and latency arbitrage. As a result, the structure became faster, flatter, and more competitive.
In fact, the introduction of high-frequency trading (HFT) further compressed spreads and tightened execution windows. According to the Bank for International Settlements (BIS 2019 Triennial Survey), electronic trading accounted for more than 80% of daily FX volume, up from roughly 30% in the early 2000s.
Final Words
So, now it should be crystal clear that forex market structure is a layered and decentralized system that defines how currency trading functions globally. It evolved from exclusive interbank dealings into a broad, tech-driven ecosystem involving central banks, institutions, brokers, and retail traders. Market access, pricing, and liquidity all depend on one’s position within this structure.
It is important for you to understand the structure because every trading decision—from order timing to risk control—relates directly to how the market operates.
