Trade mechanics – again, some terminology
A trade is made when two parties meet and agree to buy or sell from each other. These parties are called counterparties.
If I buy 1 million euros for the equivalent in US dollars and the exchange rate is 1.1, then I paid 1.1 million US dollars to have a position of 1 million EURUSD. I am going to have this position until I sell back this amount of euros for the equivalent amount of US dollars and, therefore, liquidate my position and become market neutral again until I open a new position.
If I improve the asking price by sending an offer that is lower than the previous best offer, then I provide liquidity to the market.
If I simultaneously improve ask and bid, and other traders become counterparties for both, then I make the market. Making the market means earning the spread (the difference between bid and offer) while remaining market neutral. The market participant whose main business is making the market is called a market...
