The first foreign exchange brokers came on the scene in the mid 1970s to satisfy the demand for continuous price quotes in the major currencies from the thousands of medium and small banks with significant customer foreign exchange business to offset. These banks were unwilling to be in the direct market because providing competitive rates to the large banks was costing them more money then they were making from their customers.
Initially the foreign exchange brokers installed direct lines to all the banks willing to participate. Generally a major bank made a rate and the brokers showed the rate to all the banks at about the same time. The first bank to deal on the rate completed a transaction. The others waited for the next rate. Any bank could make a rate; show a bid or an offer. Soon the brokers became quite efficient at putting together a continuous two-way price.
Reuters introduced a web based dealing system for banks 1992, followed by a similar web based system introduced by EBS (Electronic Brokerage System) for banks in 1993; although it took some time, by 1996 it was clear the voice broker was being replaced by the electronic broker.
Around the same time web based dealing systems that corporations could use in lieu of calling banks on the phone began to appear. Followed by the first web based dealing systems for individuals. Today there are hundreds of online FX brokers fighting for the business of the small trader or investor. Some are good; some are not (more on this later).
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