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📚Market Structure Fundamentals

Understanding Market Structure

Before you start trading forex or crypto, you need to know where you're actually trading. This is one of the most misunderstood parts of trading—let's break it down with interactive visuals and clear explanations.

~20 minReading Time
5Key Concepts
8Interactive Demos
1Quiz
🌍Forex Market Sessions (24/5)

🎯What You'll Learn

✓

Understand why forex doesn't have a single exchange and what OTC (Over-The-Counter) trading means

✓

Explain the role of forex brokers and how they connect you to the market

✓

Identify the two main types of forex brokers (ECN/STP and Market Maker) and know the basic difference

✓

Understand the two main paths for trading crypto: CEX and DEX

✓

Compare the pros and cons of each crypto trading path and know which is best for beginners in the Philippines

📑Table of Contents

1.1 Forex is Not an Exchange

Understanding the Over-The-Counter (OTC) Market

When you trade forex, you're not trading on a single exchange floor like you see in movies with the stock market. Instead, forex works through something called the OTC (Over-The-Counter) market.

🏛️ Centralized Exchange (Stocks)

👤
Buyer
👤
Seller
👤
Buyer
🏛️
  • One central location
  • Single order book for all
  • Same price for everyone
  • Regulated trading hours

🌐 OTC Market (Forex)

🏦
🏦
💹
💹
🏢
🏢
  • No central location
  • Multiple price quotes
  • Prices vary slightly
  • 24 hours, 5 days a week
📖What OTC Means
  • •There's no single physical location or building where forex trades happen
  • •There's no central order book that everyone uses
  • •Banks, financial institutions, hedge funds, and companies trade with each other directly
  • •Prices can vary slightly from one place to another
Think of it like visiting different money changers...

Imagine you want to exchange your pesos for dollars. You can go to different money changers, and each one might offer you a slightly different rate. That's similar to how the forex market works—different banks and institutions quote different prices to each other.

💱 Interactive: Different Rates at Different Places

🏪
Mall Changer
₱55.20
Best Rate!
🏦
Bank A
₱55.05
Best Rate!
🏢
Bank B
₱54.90
Best Rate!
🛒
Airport
₱55.15
Best Rate!

Click on any booth to see how different places offer different rates for $1 USD

What This Means for Retail Traders

Here's the important part: Retail traders (that's you and me) cannot directly access the big interbank market where the major banks trade with each other.

We're too small. Banks trade in millions of dollars at a time. They're not interested in our ₱5,000 or ₱50,000 trades. So, we need a forex broker to be our "gate" or connection to this market.

🔄 How Your Order Flows Through the Market

👤
You(Retail Trader)
🏢
Your Broker(Gateway)
💹
Liquidity Providers(Big Banks)
🌐
Interbank Market(Global Network)

🌐 The Forex OTC Network

💱
Interbank
Network
Major Banks
Brokers
Hedge Funds
Corporations
🔑Your Broker's Role
  • ✓Connect you to liquidity providers (big banks willing to take the other side of your trade)
  • ✓Show you the buy and sell prices
  • ✓Execute your orders
  • ✓Handle your deposits and withdrawals
📌

Simple way to remember: In forex, your broker is your gateway. No broker = no access to the market.

1.2 Two Main Broker Types

Understanding how different brokers handle your trades

Not all forex brokers work the same way. There are two main types you should know about. Understanding the difference will help you choose the right broker for your trading style.

🌉 ECN/STP Brokers
👤
You
🌉
Bridge
🏦
🏦
🏦

How They Work

Pass your orders directly to liquidity providers. They act like a "bridge" connecting you to the real market.

Pricing

Tighter spreads (0.1-0.5 pips) + separate commission ($3-$7 per lot)

Pros & Cons

  • Transparent pricing
  • Direct market access
  • No conflict of interest
  • Commissions add up
  • Variable spreads
🎰 Market Maker Brokers
👤
BUY
👤
SELL
⟷
🎰

How They Work

The broker takes the opposite side of your trade from their own "inventory".

Pricing

Wider spreads (1.5-3 pips) but usually no separate commission

Pros & Cons

  • Simple fee structure
  • Fixed spreads available
  • Beginner friendly
  • Conflict of interest
  • Less transparent

🧮Spread Cost Calculator

Total Cost Per Trade
$15.00
Spread: $15.00 | Commission: $0.00

📇 Key Terms Flashcards (Click to flip)

🌐
OTC
Over-The-Counter
↻ Click to flip
A decentralized market where trading happens directly between parties, not on a central exchange. Forex is an OTC market with $7.5 trillion daily volume.
🌉
ECN/STP
Broker Type
↻ Click to flip
Electronic Communication Network / Straight Through Processing. These brokers pass your orders directly to liquidity providers without dealing desk intervention.
📊
Spread
Trading Cost
↻ Click to flip
The difference between the buy (ask) and sell (bid) price. Example: If EUR/USD bid is 1.1000 and ask is 1.1002, the spread is 2 pips.
🏦
Liquidity Provider
Market Participant
↻ Click to flip
Large financial institutions (banks like JP Morgan, Deutsche Bank) that are willing to take the other side of your trade, providing "liquidity" to the market.

1.3 Crypto Has Two Main Paths

CEX vs DEX: Which path is right for you?

Unlike forex, crypto gives you more choices for where and how you trade. You can trade on a centralized platform run by a company, or you can trade directly on the blockchain using a decentralized exchange.

Think of a CEX like a mall with security guards and cashiers

A Centralized Exchange is a company-run platform where you can buy, sell, and trade cryptocurrencies. The exchange handles everything for you—matching orders, holding funds, and processing withdrawals.

🏢 How a Centralized Exchange Works

👤
Buyer
👤
Seller
👤
Trader
👤
You
🏢
CEX Platform
Order BookKYCSupport
👛
Exchange Wallet

⚠️ Exchange holds your private keys

🇵🇭Fiat On-Ramps & Off-Ramps (Important for Filipinos!)

On-ramp = Converting your pesos into crypto
Off-ramp = Converting your crypto back into pesos

BSP-Licensed Platforms in the Philippines:

  • 🏦PDAX (Philippine Digital Asset Exchange)
  • 🏦Coins.ph

✅ CEX Pros

  • →Easy to use for beginners
  • →Can convert PHP ↔ Crypto
  • →Customer support available
  • →Usually lower trading fees

❌ CEX Cons

  • →Exchange holds your coins
  • →Can get hacked (Mt. Gox, FTX)
  • →Requires KYC verification
  • →"Not your keys, not your coins"
Think of a DEX like a vending machine that runs on code

A Decentralized Exchange is a platform where you trade crypto directly with other users through smart contracts. There's no company in the middle—just code running on the blockchain.

🔗 How a Decentralized Exchange Works

📜
Smart Contract
👛
Your Wallet
👛
Trader B
👛
Trader C
🏊
Liquidity Pool
🏊
Liquidity Pool
📍Popular DEX Examples
  • 🦄Uniswap — On Ethereum network
  • 🥞PancakeSwap — On BNB Chain (lower fees)

⚠️ These are more advanced and usually used by experienced traders.

✅ DEX Pros

  • →You control your coins
  • →More privacy (no KYC)
  • →Can't be "shut down"
  • →Your keys, your coins

❌ DEX Cons

  • →More complicated to use
  • →Gas fees can be ₱500-₱5,000+
  • →No customer support
  • →Can't easily convert to PHP

📊 CEX vs DEX Comparison

CEX (Centralized)
DEX (Decentralized)
🇵🇭

🎯Which Path Should You Choose as a Beginner?

For beginners in the Philippines: Start with a CEX.

  • It's simpler and easier to use
  • It's safer if you use a BSP-licensed platform (PDAX, Coins.ph)
  • You can cash in and out with Philippine pesos easily
  • You get customer support if something goes wrong

Once you have more experience, you can explore DEXs. But for now, stick with a centralized exchange.

📇 Crypto Terms Flashcards

🏢
CEX
Centralized Exchange
↻ Click to flip
A company-run platform that matches buyers and sellers. They hold your crypto and require identity verification (KYC). Examples: PDAX, Coins.ph, Binance.
🔗
DEX
Decentralized Exchange
↻ Click to flip
A peer-to-peer exchange using smart contracts. You control your own wallet and keys. No central authority. Examples: Uniswap, PancakeSwap.
⛽
Gas Fees
Blockchain Cost
↻ Click to flip
Transaction fees paid to blockchain network validators. On Ethereum, these can be very high during busy periods (₱500-₱5,000+ per transaction).
🔐
KYC
Know Your Customer
↻ Click to flip
Identity verification process required by regulated exchanges. You submit ID, selfie, and proof of address to comply with anti-money laundering (AML) laws.

📌 Common Mistakes & Tips

Learn from others' errors to protect yourself

⚠️
Mistake 1: Thinking all forex brokers are the same

Not all brokers are trustworthy. Some market makers have bad reputations for manipulating prices or refusing withdrawals. This can cost you money and cause frustration.

💡Pro Tip

Always check if your forex broker is regulated by a trusted authority (like ASIC in Australia, FCA in the UK, or CySEC in Europe). Read reviews from real users before depositing any money.

⚠️
Mistake 2: Leaving all your crypto on a CEX

If the exchange gets hacked or goes bankrupt (like FTX in 2022), you could lose everything. Remember: "Not your keys, not your coins."

💡Pro Tip

If you have a significant amount of crypto (more than ₱50,000), consider moving some of it to a self-custody wallet where you control the private keys.

⚠️
Mistake 3: Jumping into a DEX too early

DEXs are complicated. Beginners often make costly mistakes like paying too much in gas fees, sending crypto to the wrong address, or falling for scam tokens. There's no customer support.

💡Pro Tip

Start with a CEX. Once you're comfortable with basic trading and understand how wallets work, then explore DEXs if you want more control over your assets.

Quick Summary

Key takeaways from this section

🌐

Forex is an OTC Market

There's no central exchange. You need a broker to connect you to the market. Two main broker types: ECN/STP (passes orders to liquidity providers) and Market Maker (takes the opposite side of your trade).

🔀

Crypto Has Two Main Paths

CEX (Centralized Exchange): Easy to use, can convert pesos to crypto, but the exchange holds your coins. DEX (Decentralized Exchange): You control your coins, more private, but harder to use.

🇵🇭

For Filipino Beginners: Start with a Licensed CEX

Use BSP-licensed platforms like PDAX or Coins.ph. They're simpler, safer, and let you cash in/out with Philippine pesos easily.

🔒

Always Check Reputation & Regulation

For forex: Check if the broker is regulated by a trusted authority (ASIC, FCA, CySEC). For crypto: Use licensed VASPs in the Philippines.

✅ Section Completion Checklist

  • I understand that forex is an OTC market with no central exchange
  • I can explain the difference between ECN/STP and Market Maker brokers
  • I know the pros and cons of CEX vs DEX for crypto trading
  • I understand why beginners should start with a licensed CEX
  • I know to check broker/exchange regulation before depositing money

📝 Knowledge Check Quiz

Test your understanding of market structure

Question 1 of 5

Frequently Asked Questions

Common questions about market structure

The interbank forex market deals in very large volumes (millions of dollars per trade). Banks and large institutions won't deal with small retail orders. Brokers aggregate orders from many retail traders or connect you to liquidity providers who will take smaller positions. Think of it like a wholesale market—you need a middleman to buy in smaller quantities.
It depends on the exchange and how much you're storing. Licensed exchanges like PDAX and Coins.ph in the Philippines have security measures and are regulated by BSP. However, there's always some risk when you don't control your own keys. For small amounts you're actively trading, a CEX is convenient. For larger holdings (₱50,000+), consider moving some to a self-custody wallet.
This is a popular saying in crypto. Private keys are the secret codes that give you ownership of your cryptocurrency. When you use a CEX, the exchange holds the private keys—you're essentially trusting them with your money. If they get hacked or shut down (like FTX in 2022), you could lose access. When you use a DEX or self-custody wallet, you control your own keys, meaning you have true ownership.
Gas fees on Ethereum depend on network congestion. When many people are trying to use the network at once, fees go up (supply and demand). During busy periods, a simple swap on a DEX could cost ₱500-₱5,000 or more. This is one reason beginners should start with a CEX, where fees are fixed and much lower. Some Layer 2 solutions and alternative blockchains (like BNB Chain) have lower fees.
Check the broker's website for their license information. Reputable regulators include: ASIC (Australia), FCA (UK), CySEC (Cyprus/EU), CFTC/NFA (US). You can verify their license number on the regulator's official website. Be wary of brokers registered only in offshore locations with weak regulation. Always do your research and read reviews from real traders before depositing money.
Important Disclaimer

Forex and cryptocurrency trading involve substantial risk of loss. You can lose money—sometimes all of it. Never trade with money you cannot afford to lose.

This educational material is provided by Legacy Builders Association for informational purposes only. It does not constitute financial advice, investment advice, trading advice, or any other sort of advice.

If you're making real investment decisions, please consult with licensed financial professionals in the Philippines. This course teaches you how things work—not what to buy or sell.

Practice first. Start small. Learn the systems before risking real money.