Key players in forex markets

Since the forex spot market is decentralized, it is the largest banks in the world that determine the exchange rates. These large banks, collectively known as the interbank market, take on a ridonkulous amount of forex transactions each day for both their customers and themselves.

For these flow monsters, the name of the game is volume and capturing their share of the trading flow of currencies. For instance, Apple must first exchange its U. Since the volume they trade is much smaller than those in the interbank market, this type of market player typically deals with commercial banks for their transactions.

Governments and central banks, such as the European Central Bank , the Bank of England , and the Federal Reserve , are regularly involved in the forex market too. After reading this article you will learn about: 1. Nature of Foreign Exchange Market 2.

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Participants in Foreign Exchange Market 3. Segments 4. The foreign exchange market is the place where money denominated in one currency is bought and sold with money denominated in another currency. It provides the physical and institutional structure through which the currency of one country is exchanged for that of another country, the rate of exchange between currencies is determined, and foreign exchange transactions are physically completed.

The primary purpose of this market is to permit transfer of purchasing power denominated in one currency to another. For example, a Japanese exporter sells automobiles to a U. The U. Company will like to receive payment in dollar, while the Japanese exporter will want yen. It would be inconvenient for individual buyers and sellers of foreign exchange to seek out one another.

So a foreign exchange market has developed to act as an intermediary. It is the largest financial market in the world with prices moving and currencies trading somewhere every hour of every business day. It is the largest financial market in the world having daily turnover of over billions dollar in Bulk of the trading is accounted for by a small number of currencies the U. Foreign exchange market is of two types, viz. In retail market, travellers and tourists exchange one currency for another. The total turnover in this market is very small. Wholesale market comprises of large commercial banks, foreign exchange brokers in the inter-bank market, commercial customers, primarily MNCs and Central banks which intervene in the market from time to time to smooth exchange rate fluctuations or to maintain target exchange rates.

It is worth noting that central bank intervention involving buying or selling in the market is often indistinguishable from the foreign exchange dealings of commercial banks or of other participants.

The foreign exchange is similar to the over-the counter market in securities. It has no centralized physical market place except for a few places in Europe and the futures market of the International Monetary Market of the Chicago Mercantile Exchange and no fixed opening and closing time. The trading in foreign exchange is done over the telephone, telexes, computer terminals and other electronic means of communication.

The currencies and the extent of participation of each currency in this market depend on local regulations that vary from country to country. It is interesting to note that bulk of the turnover in the international exchange market is represented by speculative transactions.

Foreign exchange market in India is relatively very small. Measure content performance. Develop and improve products. List of Partners vendors. In this article we will take an introductory look at forex, and how and why traders are increasingly flocking toward this type of trading. An exchange rate is a price paid for one currency in exchange for another. It is this type of exchange that drives the forex market. There are different kinds of official currencies in the world.

However, most international forex trades and payments are made using the U. Other popular currency trading instruments include the Australian dollar, Swiss franc, Canadian dollar, and New Zealand dollar. Currency can be traded through spot transactions, forwards , swaps and option contracts where the underlying instrument is a currency.

Currency trading occurs continuously around the world, 24 hours a day, five days a week.

The forex market not only has many players but many types of players. Here we go through some of the major types of institutions and traders in forex markets:. The greatest volume of currency is traded in the interbank market. This is where banks of all sizes trade currency with each other and through electronic networks. Big banks account for a large percentage of total currency volume trades. Banks facilitate forex transactions for clients and conduct speculative trades from their own trading desks.

When banks act as dealers for clients, the bid-ask spread represents the bank's profits. Speculative currency trades are executed to profit on currency fluctuations. Currencies can also provide diversification to a portfolio mix. Central banks, which represent their nation's government, are extremely important players in the forex market. Open market operations and interest rate policies of central banks influence currency rates to a very large extent.

A central bank is responsible for fixing the price of its native currency on forex. This is the exchange rate regime by which its currency will trade in the open market.

Major Players in Forex and Styles of Trading

Exchange rate regimes are divided into floating , fixed and pegged types. Any action taken by a central bank in the forex market is done to stabilize or increase the competitiveness of that nation's economy. Central banks as well as speculators may engage in currency interventions to make their currencies appreciate or depreciate. For example, a central bank may weaken its own currency by creating additional supply during periods of long deflationary trends, which is then used to purchase foreign currency.

This effectively weakens the domestic currency, making exports more competitive in the global market.

Central Banks

Central banks use these strategies to calm inflation. Their doing so also serves as a long-term indicator for forex traders.

Portfolio managers, pooled funds and hedge funds make up the second-biggest collection of players in the forex market next to banks and central banks. Investment managers trade currencies for large accounts such as pension funds , foundations, and endowments. An investment manager with an international portfolio will have to purchase and sell currencies to trade foreign securities.

Investment managers may also make speculative forex trades, while some hedge funds execute speculative currency trades as part of their investment strategies.