The forex players, learn who is involved in currency trading

The Forex Players

The forex market is by far, the largest market in the world, totaling an average of $1.9 trillion in terms of cash value traded everyday across the world. The market grows whenever one currency is traded for another and such trading is facilitated by the various participants in the currency trading game.

In the forex currency trading market, not all of the players are on the same playing field. On the contrary, the forex market follows a hierarchy in terms of level of access. The level of access is determined by the amount of money each player is trading. At the top of the hierarchy is the inter-bank market which accounts for almost 53% of the total forex transactions.

Inter-bank market

The largest investment banking firms constitute the inter-bank market. Most of the trading is done for the bank’s account though some are done on behalf of customers. In the inter-bank market, the difference between the bid and ask prices or spreads, is small if not nonexistent. Investment banking firms are in the position to guarantee numerous transactions for large amounts, hence they can ask for smaller spreads. The advantage of being in the inter-bank market is that players within this level know the spread of other players—information which is unavailable to those with lower levels of access. Smaller investment banks also belong to the inter-bank market but their spreads are often wider.

Indeed, as one goes down the hierarchy, the spread widens.

Commercial and Multinational companies

Another level in the hierarchy is composed of commercial and multi-national companies. The financial activity of these companies involves forex for goods and services. While the trading need is not as demanding as those of banks, commercial and multi-national companies still play an important role in the currency trading market and contribute significantly to the total cash value traded daily.

Central Banks

Though they are of less significance compared to commercial and multi-national companies, central banks are still important players in the trading game. National central banks control the money supply, inflation and interest rates of their country. There are speculations that central banks often buy when the exchange rate is too low and sell when the exchange rate is too high in order to stabilize the currency of their country. This speculation however, is not supported by any evidence.

Investment Management Firms

It should be clear by now how the demand for currency trading affects the level of access of each player. As one goes lower in the hierarchy, the need for a player to trade forex currency is lower hence they do not take the risk of guaranteeing large numbers of transactions for large amounts.

For example, investment management firms manage large accounts on behalf of their customers. They use forex only when they need to make transactions in foreign securities.

Retail Forex Brokers

Retail forex brokers facilitate currency trading at a smaller level. In the retail forex market, there are two separate trading desks. The first one trades forex while the other one is used for off-exchange trading for retail customers.

Most clearing banks are not willing to process small orders therefore customers do not have direct access to the inter-bank forex market. The retail forex brokers then act as facilitators for these small-order customers.

About the Author

Hunter Crowell is a researcher, marketer, and an avid trader, including Forex and also the creator of Forex Trading System a web site setup to help educate forex traders. Visit his site at http://www.forex-trading-systems.us