TRADING AMONG MAJOR DEALERS—DEALING DIRECTLY AND THROUGH BROKERS

Dealer institutions trade with each other in two basic ways direct dealing and through the brokers market. The mechanics of the two approaches are quite different, and both have been changed by technological advances in recent years.

Mechanics of Direct Dealing

Each of the major market makers shows a running list of its main bid and offer rates—that is, the prices at which it will buy and sell the major currencies, spot and forward and those rates are displayed to all market participants on their computer screens.

The dealer shows his prices for the base currency expressed in amounts of the terms currency.
Both dollar rates and cross-rates are shown. Although the screens are updated regularly throughout the day, the rates are only indicative to get a firm price, a trader or customer must contact the bank directly. In very active markets, quotes displayed on the screen can fail to keep up with actual market quotes.
Also, the rates on the screen are typically those available to the largest customers and major players in the interbank market for the substantial amounts that the interbank market normally trades, while other customers may be given less advantageous rates.