By definition, Forex (Forex) is an interbank foreign exchange market, which means that banks should be the main participants in this market. Historically, the Forex market has always been in demand by banks, but today the share of other participants is steadily growing.
The main participants in the interbank foreign exchange market are:
- Commercial banks
- Central banks
- Investment banks (funds)
- Brokerage companies
- Private individuals
- Currency exchanges
Let’s consider in order.
Commercial banks
To date, the main share of turnover in the Forex currency market is accounted for by commercial banks. How exactly does commercial banks interact with the foreign exchange market?
A commercial bank interacts directly with other commercial banks and brokerage companies on pre-agreed terms. The bank turns to the brokerage company to find out on what terms other commercial banks agree to make a deal. If the conditions suit everyone, then the transaction is made, and the brokerage company receives a commission from this transaction.
In addition to transactions with their own funds, commercial banks also trade with the finances of their clients on their behalf.
Central banks
The central bank is the most important instrument in the monetary policy of the state. It is the central bank that influences the issue of money, currency policy, interest rates on investments in the national currency, etc. Each country periodically needs to adjust the national currency exchange rate in order to thereby influence the country’s economy as a whole. This can be either direct interaction with the central banks of another country, or mediation through commercial banks.
Investment banks (funds)
This includes insurance companies, pension funds, international investment funds, mutual funds, etc. All of the listed participants carry out collective investments – placement of their funds in securities of governments and large companies, as well as speculation in the foreign exchange markets.
Brokerage companies
Brokerage companies or brokers are individuals or legal entities that act as intermediaries in the market. The purpose of the broker is to conclude a transaction between the seller and the buyer and receive a commission from this transaction. Currency market participants receive data on rates from brokerage companies.
Brokers are the central link in the policy of the Forex market.
Private individuals
The problem of private investors has always been relevant, since individual investors do not have enough funds to operate with the foreign exchange market through commercial banks. Commercial banks set the rate once a day and the difference between buying and selling is very large. Therefore, there can be no profit from the transaction.
But today, brokerage companies make it possible for an individual investor to make purchase and sale transactions.
Currency exchanges
A currency exchange is a trading platform where transactions for the purchase and sale of foreign currency take place. The currency exchange allows you to make transactions for the purchase and sale of currency to anyone and at any time. Exchange rates on the stock exchange are determined by the purchasing power of funds. The purpose of the currency exchange is by no means making a profit, but the rational distribution of free cash in various sectors of the economy.
