Today anyone can trade the Forex market. However, this was not always the case. In the 90s, only large participants had access to the Forex currency market. You would need at least $10 million to be a participant in this market. And the participants in this market at that time were only large banks and investors.
But with the development of the Internet, brokerage companies appeared on the market, which began to provide access to the Forex market to participants with small capital. Therefore, today anyone can access the Forex market, even with $10 in their pocket. But we should not forget that the Forex market is gigantic and we, small speculators, are not alone in it, and in general the tone in the market is set by larger participants.
Therefore, let's figure out who these Forex market participants are.
Forex market participants
All Forex market participants can be divided into the following groups:
Central banks of economically developed, largest countries in the world. They manage the foreign exchange reserves of their countries, regulate the levels of interest rates of the national currency and, if necessary, to maintain the required exchange rate, carry out large-scale foreign exchange interventions. The greatest influence on the currency market is exerted by the European Central Bank, the US Federal Reserve System, and the central banks of Switzerland, Japan, and Great Britain.
International banks. As a rule, these are the largest banks in the world. The volume of transactions of such banks daily amounts to billions of dollars. These banks include: Swiss Bank Corporation, Barclays Bank, Union Bank of Switzerland, Chase Manhattan Bank, Citibank, Deutsche Bank. Banks accumulate and serve the needs for currency conversions of the entire global foreign exchange market, attract funds from their numerous clients and enter the market with them.
Currency exchanges. The most famous and largest world exchanges are the New York, London and Tokyo currency exchanges. Thanks to telecommunications systems and modern Internet technologies, they operate almost around the clock throughout the week.
Commercial banks of various countries. They carry out the bulk of all foreign exchange transactions.
International insurance companies, pension, investment, mutual funds, as well as trusts that have large portfolios of assets and manage them.
Companies carrying out foreign trade operations. They have a constant demand for foreign currency. Such organizations do not have direct access to foreign exchange markets. They conduct their conversion operations through commercial banks.
Brokerage companies. Their role is to act as an intermediary - to find and bring together a buyer and a seller of foreign currency to carry out conversion transactions between them. Dealers of brokerage companies quote the currency directly with a spread, which includes their commission (see the basic concepts of the Forex market). The brokerage firm owns all the information about the requested rates and is, in fact, the place where the real exchange rate is formed based on already concluded transactions.
Private individuals. The largest group that conducts speculative transactions with currencies. In addition, individuals carry out a large number of non-trading foreign exchange transactions: transfers of fees, wages, pensions, sales and purchases of foreign currency, tourism.
Structure of the Forex currency market
Conventionally, the market structure can be divided into:
Market operators. The group includes large commercial banks that represent the highest level of reliability. To trade with foreign exchange market operators, you must have large accounts. Thus, the minimum lot size for trading with operators is about 1,000,000 US dollars. Such requirements make them unattainable for a private investor.
Market makers. These are large financial firms that provide speculative trading opportunities for brokerage firms and individual traders with a trading capital of more than $50,000. These are quite large and reliable companies. They offer conditions with lower trading costs, but in most cases they are not available to the private investor.
Brokerage firms. As a rule, these are small companies that provide everyone with the opportunity to work in the foreign exchange market with a relatively small capital, with a deposit from a hundred dollars to several thousand. They provide a larger spread for the client, which is their main source of income. They also make money from the process of training traders, selling trading signals, advisors, indicators and analytical materials.
Dealers. They are most often Internet brokers, whose main task is to serve the client, provide him with software for carrying out transactions via the Internet and support him. Their income consists of a certain part of the spread, as agreed with the brokerage firm.
The combined activities of all players in the foreign exchange market provide it with the necessary high liquidity and also allow it to function uninterruptedly.
Unlike the derivatives market and the stock market, in the Forex market there are no various specialists dictating and determining the market prices for various currencies. The price is set solely based on the supply and demand of millions of dealers, and at any given time you receive the best selling or buying price. This is what makes the foreign exchange market extremely popular and attractive, ensuring a constant influx of traders.
– these are all those who have access to it and are trying to make money on it. The largest participants are the central banks of countries and large commercial banks. Also quite significant participants include currency exchanges, investment funds and companies engaged in foreign trade. A more modest role (this is a rule from which there are always exceptions) in Forex is played by brokerage companies and private investors.
Details about all Forex market participants
Central banks
Central banks manage their country's foreign exchange reserves and ensure relative exchange rate stability. To implement their main tasks, banks use several methods: direct foreign exchange interventions and indirect influence. As you know, the Federal Reserve System (US central bank) plays the main role in Forex. The central banks of Great Britain and Germany are also quite influential.
Commercial banks
Commercial banks are those participants in the Forex market who play on it independently, using their own funds, but at the same time also earn money from various services for their clients. Some international commercial banks (such as Chase Manhattan Bank, Union Bank of Switzerland, Deutsche Bank, Barclays Bank, etc.) carry out transactions in huge amounts exceeding billions of dollars every day.
Currency exchanges
Today, quite a few serious financial institutions around the world use the services of currency exchanges. These forex players have been providing their clients with convenient access through modern telecommunications for a long time and making huge money from them. The largest currency exchanges are Tokyo, New York, London.
Investment funds
This type of participant includes various international investment funds, as well as pension funds, mutual funds, insurance companies and trusts. The Quantum fund, created by the very successful currency trader George Soros, is known throughout the world.
Firms engaged in foreign trade
The task of such companies is to present a stable supply and demand for the currency of another country. These firms, as a rule, do not have direct access to foreign exchange markets and carry out transactions with the help of commercial banks.
Brokerage companies
The main goal of these Forex market participants is to create all the conditions for concluding a transaction between the seller and buyer of foreign currency. World-famous brokers - Tullett and Tokio, Lasser Marshall, Tradition, Coutts and others.
Private individuals
This group of participants includes traders who use forex exclusively for speculative trading, as well as those who need the foreign exchange market to transfer pensions, royalties, wages, etc.
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My article will be interesting and especially useful for novice traders; I hope it will help them clear up the issue of types of Forex accounts, their features and conditions. Start over. A Forex account is a deposit, the funds of which are used by us to carry out speculative operations on the market...
When studying the Forex currency market, trading strategies and methods of technical and fundamental analysis, it is imperative to pay attention to such a factor as the Forex participants themselves. This will allow you to understand the structure of the financial market and understand your role in this structure. Currently, there are approximately seven main participants in the Forex market. Among them: commercial banks, currency exchanges, central banks, foreign trade companies, investment funds, brokerage companies, as well as individuals.
Now let's take a closer look at each of the participants
Commercial banks
As a rule, Forex participants open their accounts in banks, which carry out conversion transactions necessary for clients on these accounts. Through transactions with clients, the aggregate needs of the market are accumulated through currency conversions, attraction and placement of funds with which the bank reaches other banks. At the same time, banks can use their own or borrowed funds to carry out transactions. Due to the fact that the foreign exchange market mainly consists of interbank transactions on the movement of exchange rates, in essence it is actually an interbank foreign exchange market. International banks have the greatest influence on Forex, among which the largest are Barclays Bank, Citibank, Chase of Switzerland, etc. The daily turnover of such banks reaches billions of dollars.
Currency exchanges are different in that they do not require a separate building and do not have specific opening hours. Thanks to modern telecommunications technologies, Forex participants can access the exchange directly at any time of the day. The world's largest exchanges include the Tokyo, New York and London Currency Exchange.
Central banks primarily perform the functions of managing foreign exchange reserves and conducting foreign exchange interventions, which affect the level of the exchange rate. They also regulate the level of basic interest rates on deposits and investments in the national currency. The greatest influence on the global foreign exchange market is exercised by the US Federal Reserve System, the European Central Bank and the Central Bank of Great Britain.
Foreign trade companies
Companies that trade internationally act as importers and exporters of foreign exchange. As a rule, these enterprises do not have direct access to the foreign exchange market, so all deposit and conversion transactions are carried out through commercial banks. As Forex participants, companies engaged in foreign trade operations do not seek to make a profit from currency fluctuations, but aim to minimize the associated losses.
These include various international investment, mutual and pension funds, insurance companies and trusts. They engage in diversified portfolio management. In this case, funds are placed in the form of securities of corporations and governments of various countries. The most famous is the Quantum fund, which is distinguished by its successful currency speculation. This type of market participants also includes large international corporations that make foreign industrial investments through branches and joint ventures.
Brokerage companies are mainly engaged in bringing together the buyer and seller of foreign currency and ensuring the conduct of a conversion transaction between them. Brokers receive profit in the form of commission for intermediation. Moreover, in the foreign exchange market it is not presented as a percentage of the transaction or a pre-agreed amount. These forex participants quote currencies with a spread that contains commissions. The brokerage firm has all the information about the requested rates and generates the real exchange rate for completed transactions. The current level of the exchange rate is received by commercial banks from brokerage firms. The most famous brokers in the foreign exchange market are companies such as Lasser Marshall, Tullett and Tokio, Harlow Butler, Coutts, Tradition, etc.
Recently, an increasing number of private investors have entered the foreign exchange market, conducting a wide variety of non-trading foreign exchange transactions related to foreign tourism, transfer of wages, fees or pensions, as well as the purchase and sale of foreign currency. These participants represent the largest group that primarily engages in currency trading for speculation.
The Forex participants listed above are the main ones in the modern foreign exchange market, but they are far from the only ones. However, this information is quite enough to get an idea of the structure of the foreign exchange market.
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There are many legends and myths about the Forex market. Some science fiction writers even say that currency trading occurs through one large computer center, which sets prices for certain trading instruments. And people believe in such things.
In order not to be deceived, and not to become a victim of another ignoramus who imagines himself to be a Forex expert, it is necessary to personally understand the structure of the market. Nobody bothers you to study everything individually and stop believing in the fairy tales of losers who are offended by the whole world after a negative trading experience.
It is worth understanding that Forex is a complex system of interconnected financial structures. Any operation takes place through an economic institution: a commercial bank, a dealer, or the state Central Bank. Each market participant has its own volumes. The largest, undoubtedly, belong to the central banks of states. The turnover of dealers and commercial banks is slightly lower. And the daily volumes of brokers amount to tens of millions of dollars.
Also, do not forget about personal accounts and various.
Private banks represent the main group of participants in the Forex market. Deposits from clients of commercial banks help to carry out very large trading operations. As a rule, many market participants open accounts and give instructions for the implementation of conversion transactions. Thus, they receive currency for personal purposes.
The big advantage of private banks is their popularity among various segments of the population. People bring money, and a commercial structure carries out speculative operations on them aimed at making a profit. Therefore, the volumes of such banks are very large. If there are not enough funds, then they can cooperate with the same participants in the Forex market. Consequently, this demonstrates that the foreign exchange market is not any monopolistic company, but is a huge network of interbank processes that support the global economy.
Therefore, no myths that Forex is a scam or a big computer are confirmed. Real facts of interaction between banking structures and individuals, government agencies and funds reveal the true meaning of Forex.
The central banks of various countries are also considered important members of the international currency market. Their strength is most relevant during interventions and large purchase and sale transactions of any trading instrument. Constant processes of maintaining market liquidity and national currency rates have a beneficial effect on Forex.
The following institutions are considered the largest and most influential central banks: the US Federal Reserve System, as well as the central banks of Europe, Japan and England. The US Federal Reserve's Open Market Committee also has a major influence on the foreign exchange market.
Dealers are considered important participants in Forex. A large percentage of arbitrage transactions pass through them. Speculative transactions are also actively carried out by dealers. In turn, brokers work on commission and act as a liaison between sellers and buyers. Actions on behalf of and on behalf of the client. This is how one can characterize the activities of a broker. All operations are carried out from the client's account. The completed process of order execution gives a well-deserved commission, which is considered the main source of income for specialists in this profession.
Dealing companies are very popular in many countries. They are intermediaries who accept money from clients into trading accounts. Thus, funds are collected and used for purchase and sale transactions through commercial banks. Many traders have felt the convenience of cooperation with us. You can easily and simply open an account and carry out trading operations from anywhere in the world.
Understanding the structure of the Forex market, as well as awareness of the role of each of its participants, helps the trader make the right decisions. After all, the information field gives a lot of bonuses to all financiers who are constantly studying new aspects of the international monetary system.
Forex Kindergarten / Chapter 2. Forex Participants
Before you start working on Forex, you need to understand what place a private investor occupies in the global currency exchange system. Studying the type of participants in Forex and their influence on this market will allow us to understand how exchange rates change in the world. A slightly simplified diagram of interaction between Forex participants is given below.
The central link in the international currency exchange system is brokerage firms, they are also called brokerage houses. They act as intermediaries between other major Forex participants.
Commercial banks are the main participants in Forex. They can carry out currency purchase/sale transactions, both on their own behalf and on the orders of their clients. Such transactions can be concluded either directly with other commercial banks with which it was possible to reach an agreement regarding quotes, or through brokerage firms. The simplified interaction scheme here is as follows: the dealer department of a commercial bank that wants to purchase the currency it is interested in contacts a brokerage firm and asks what transaction terms are offered by other commercial banks. If the terms of the transaction are satisfactory, commercial banks enter into a transaction through a brokerage firm, which in turn earns on a commission (a percentage of the completed transaction). Thus, brokerage firms are central place(!), where the real exchange rate is formed. Commercial banks receive information about the current rate level from brokerage firms.
Another major participant in Forex are central banks countries of the world. These participants enter the market, as a rule, not with the aim of making a profit, but with the aim of adjusting the exchange rate, and, consequently, the economy of their country. Often central banks enter into transactions not directly, but through one or more commercial banks, masking their activities. Central banks in the developed world can unite to achieve a common goal.
All listed Forex participants are active participants, that is, they not only carry out transactions on the foreign exchange market, but also offer their own prices (quotes). Active participants typically transact in the millions of US dollars and do not use margin trading(this will be discussed in detail later). Active Forex participants are also called market makers(from the English phrase market makers). In addition to active participants in Forex there are also passive participants– that is, those who do not set quotes, but can only make transactions based on quotes offered by active participants.
Passive participants primarily include various investment funds. These companies, carrying out currency speculation, place their funds in securities of governments and corporations of various countries. One of the most famous investment funds is the Quantum fund of George Soros. Investment funds have billions of US dollars at their disposal and, moreover, they can attract billions of US dollars in borrowed funds, so investment funds can even withstand central bank interventions in the foreign exchange market.
Another type of passive participants in Forex are participants in foreign trade operations. These are companies that export abroad or import from abroad. If a transaction to import goods is carried out in foreign currency, then such currency must be purchased before the transaction is completed. On the other hand, if a transaction to export goods is concluded in foreign currency, then such currency must be sold after the transaction is completed. Such transactions are usually carried out exclusively through commercial banks.
The next passive participant can be noted international corporations– these are companies with branches abroad. When moving funds from branches abroad to central offices, one cannot do without conversion transactions performed through commercial banks.
Gradually we approached the role private investor on the international Forex currency market. A private investor, as a rule, does not have sufficient capital to make transactions through brokerage houses - the minimum size of such a transaction on Forex is $100,000. Through commercial banks, a private investor can make currency purchase/sale transactions, but it is impossible for private investors to speculate on the rates of commercial banks - they change, as a rule, only once a day, and the difference between the purchase and sale rates ( spread, more on that later) is very high in order to make any profit from the operation. That is why the so-called commission houses(they can also be called retail brokerage houses), whose target clients are private investors. Using the principle margin trading(it will be discussed in detail later) a private investor can, having a relatively small capital, make transactions through a commission house that are hundreds of times greater than this capital, but at the same time risking only his own capital (without risking other people's funds).
With the development of the Internet, brokerage houses have evolved into dealing centers and can now provide their services to everyone around the world. Anyone with a sum of several thousand US dollars can try his hand at working on Forex. But don't rush it! Before you open an account and start working in one of the dealing centers on the Internet, thoroughly study the material on the site and work on a virtual account for several months. Almost all dealing centers on the Internet allow you to open a virtual account. You will not lose anything and will gain invaluable initial Forex trading experience.
