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The Forex Market Participants

As you may already know, the participants in the stock market all have the exact same access to prices. In the foreign exchange market, the participants are divided up into different types of access. The interbank market is at the top level of access and it is generated by the most respected and biggest investment banking firms. Spreads, within this market, are described as the difference located between the bid/ask prices and they are normally unavailable and razor sharp. The spreads are not known by players that are located outside of the inner circle. One thing that you need to keep in mind as you move down through the different levels of access is that the difference present between the bid/ask prices is going to widen. The main reason that it rises is because of the volume. In the situation where an individual trader is able to guarantee a greater number of transactions for greater amounts, a trader will be able to demand that there be a smaller difference between the bid/ask price, this is referred to as the better spread. In the forex market, the different types of access are determined by the actual size of the line which is the exact amount of money that they are trading with. The inter-bank market which is the top tier is known to account for fifty three percent of all transactions. Following the inter-bank market you will find smaller investment banks which are then followed by large multi-national corporations which have the need to hedge the risk and also pay their employees that are located in different countries. Next you will find the large hedge funds and some of the makers of the retail forex market.

Banks in the Foreign Exchange Market

Each and every day, the inter-bank market which is the top-tier, caters for the majority of the commercial turnover as well as great quantities of speculative trading. Daily, a large bank has the potential to trade billions of dollars. Even though a portion of this trading is being undertaken on behalf of the customers, a lot of the trading is conducted by the proprietary desks which are trading for the individual bank’s very own account. In the pass, the forex brokers would do large amounts of their business, matching anonymous counterparts and facilitating interbank trading for small fees. However, today, a lot of the forex broker’s business is done through electronic systems which have proven to be more efficient.

Commercial Companies in the Foreign Exchange Market

In the forex market, a rather important aspect of the market comes from the companies financial activities which seek out foreign exchange in order to pay for services or goods. When compared to that of speculators and banks, the commercial companies are known to normally trade relatively small amounts and the commercial companies trades are known to have a slight short term impact on the rates of the market. However, you should always remember that the trade flows are rather important in relationship to the long term direct of the exchange rate of the currency. There are some multinational companies that can have a rather unpredictable impact when they are covering extremely large positions because of the exposures that are not greatly known by the other participants in the forex market.

Central Banks in the Foreign Exchange Market

In the forex market, the national central banks are known to play a very important role. For their currencies, the national central banks will try to have control over the money, inflation, supply as well as the interest rates. The national central banks are also known to have unofficial or official target rates for their own currencies as well. The national central banks also have the ability to use their substantial foreign exchange reserves in order to stabilize the market. However, one must remember that central banks aren’t always able to achieve the objectives they set for themselves. Just about any national central bank out there can be overwhelmed by the resources of the forex market.

Hedge Funds in the Foreign Exchange Market

Since nineteen ninety, hedge funds have really acquired the reputation as an aggressive currency speculation. Hedge funds have the control of billions and billions of dollars of equity and they have the ability to borrow billions more as well and still they may take the time to overwhelm an intervention by the national central banks in order to support any type of currency that is if the economic fundamentals are supporting the hedge fund’s favor.