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For stocks, which I am familiar with, some stock brokers provide access to level 2 data from NYSE and NASDAQ. Level 2 data is also available for some OTC stocks. I am now exploring the foreign exchange market, and I tried to look for "level 2 data for forex", but I am confused:

Some foreign exchange brokers provide real-time access to the order book (depth of market), showing every bid price, bid quantity, ask price, and ask quantity placed by market participants. From my understanding, foreign exchange is also traded over-the-counter. Many trading locations exist, and the forex broker executes the trade on one of these trading locations.

The questions are:

  1. What exactly does the order book show? Presumably, it does not show the bid and asks of every market participant on the planet because (a) there are lots of trading locations, so it is infeasible for the broker to have a live feed to all of them (b) over-the-counter trading means that there are large transactions that happen without transparency.
    • Does the order book show bid/ask of the broker's clients only (i.e. bid/asks within the broker's walls)?
    • Or does it show the bid/ask of all participants in the trading location that the broker happens to use to execute trades?
  2. Where do brokers execute the bids and asks that successfully fill on the order book?
  3. If the broker is allowed to manipulate the order book (e.g. by having the power to fill it with fake data), what is to stop it from front-running its clients?
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Retail forex brokers generally lay-off their order imbalance to large banks that make an institutional forex system. So retail forex is based on an institutional forex banking system.

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