Importance of Forex Trade
Market Participants
In accordance with access, foreign exchange market can be categorized into many levels and there are a lot of market participants that affect the forex market. On the top most level, we have the inter-bank market which includes large banks and security dealers. The difference between the asking price and the bid is very small. This gap widens as we move down the levels. Amount of money that is being traded determines the level of access in foreign exchange. The top most level makes up for 53% of all the business. This means that most of the money is being traded at this level.
Banks:
As mentioned afore, bulk of the trade in foreign currency goes on between banks and banks are one of the key market participants. On average, a large bank does billions of dollars worth of trading every month. Some of the trading is done for the customers as well. At first, online forex brokers did most of the trading but now, their place is taken over by various electronic trading systems designed specifically for this purpose.
Commercial Companies:
Companies that require foreign exchange to pay for their services and goods also make up an important part of forex online trade but their share in the bigger picture is small. Therefore, these companies do not impact the forex market as much as other market participants. Still, these companies can have a bearing on any currency’s rate.
Central Banks:
National bank of any country has a very vital role to play in forex trading and is an active market participant in that country. Central banks try to control interest rates, inflation rates and money supply. If the currency is going unstable, they can make use of the foreign exchange reserves to make the market more stable. These central banks also have targets with regards to their currencies.
Forex Fixing:
It is one of the market participants that affect the forex market on daily basis. This refers to the rates set by home central banks for their currencies. Online forex brokers make use of these rates to understand the emerging trends.
Investment Management Firms:
These companies are responsible for managing accounts of their clients. These firms work to increase the clients’ profits and reduce the risks to their currencies.
Non-bank Foreign Exchange Companies:
These companies do not involve speculative trading. This type of trading involves actual payments. These companies claim to offer better exchange rates than banks involved in foreign exchange trading.
Money Transfer/Remittance Companies:
These companies are responsible for transferring money from emigrants to their home countries. The best company in this regard is Western Union. UAE Exchange comes second in this regard.
Retail Foreign Exchange Traders:
With the introduction of retail forex platforms, retail traders have become an important market participant. They are participating in the forex trading courtesy online forex bank and broker. They have been subjected to some strict legislation owing to the growing number of scammers. Retail forex brokers are of two kinds. First ones are the online forex brokers that do business on behalf of the customers. Others are dealers who set a trading price. It is at the discretion of the customers whether they want to do business with them or not.
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