Here’s an opinion gleamed from an article.
The beauty of foreign exchange markets comes from the decentralization of competitive foreign exchange dealers. This give rise to the term “adverse selection” in some literature.
FX dealers charge the bid-ask spread to neutralize the effects of losing trades of informed counter-parties. As a result, dealers that can differentiate between informed and uninformed customers charge higher spreads on trades with informed customers and lower spreads on trades on uninformed customers.
Super unfair.
OTC dealers do the opposite. Due to ECN competition, they charge lower spreads on big customers, gleam information off their orders, and charge higher spreads to retail customers.
Super unfair again.
Dealer always wins.
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