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When trading stocks or futures you normally do so via a centralized exchange such as the New York Stock Exchange or the Chicago Mercantile Exchange. In addition to providing a centralized place where all trades are conducted, exchanges such as these also play the key role of acting as the counter party to all trades. What this means is that while you may be buying for example 100 shares of Google stock at the same time someone else is selling those shares, you do not buy those shares directly from the seller but instead from the exchange.

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The video presented above provides an explanation on the differences between over the counter markets and exchange traded markets as it relates to the forex market. In exchange traded markets, the exchange is the counter party to all of the trades. Additionally, there is price standardization and execution. One negative these exchanges involves less price competition.

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