The banks were the first market makers…

To realize the huge markup profits the banks needed to “close out” the open positions created from their client Forex trades. To accommodate this the banks created reciprocal trading relationships with one another. It worked like this. Bank A agreed to make a two way market for a specific amount of a currency pair with Bank B from 8am to 3pm local time. In return Bank B agreed to make a two way market for a specific amount of a currency pair with Bank A from 8am to 3pm local time. The arrangement was usually set up with a phone call between the two bank traders. This was called “direct dealing”. I was a “direct dealer” in the GBPUSD pair for 20 years.

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