Main Players In The Forex Market
Businesses & Corporations
Not all participants have the power to set prices as market makers. Some just buy and sell according to the prevailing exchange rate. They make up a substantial allotment of the volume being traded in the market.
This is the case of companies and businesses of any size from a small importer/exporter to a multi-billion Dollar cash flow enterprise. They are compelled by the nature of their business - to receive or make payments for goods or services they may have rendered - to engage in commercial or capital transactions that require them to either purchase or sell foreign currency.
Fund Managers, Hedge Funds and Sovereign Wealth Funds
With Forex trading surging in recent decades, and as more individuals earn their living trading, the popularity of riskier investment vehicles like hedge funds has increased. These participants are basically international and domestic money managers. They can deal hundreds of millions, as their pools of investment funds tend to be very large.
Because of their investment charters and obligations towards their investors, the bottom line of the most aggressive hedge funds is to achieve absolute returns besides of managing the total risk of the pooled capital. Foreign exchange advantage factors like liquidity, leverage and relatively low cost create a unique investment environment for these participants.
Generally speaking, fund managers invest on behalf of a range of clients including pension funds, individual investors, governments and even central banks. Also government-run investment pools known as sovereign wealth funds have grown rapidly in recent years.
Internet Based Trading Platforms
One of the great challenges to the institutional Forex and how exchange related businesses are being handled has been the emergence of the Internet-based dealing platforms. This medium contributed to form a diverse global market where prices and information are freely exchanged.
As evidenced by the emergence of electronic brokering platforms, the task of customer/order matching is being systematized as these platforms act as direct access points to pools of liquidity. The human element of the brokering process - all the people involved between the moment an order is put to the trading system until the moment it is dealt and matched by a counter party - is being reduced by the so called "straight-through-processing" technology.
Similar to the way we see prices on a Forex broker's platform, a lot of interbank dealing is now being brokered electronically using two primary platforms: the price information vendor Reuters introduced a web based dealing system for banks in 1992, followed by Icap's EBS - which is short for "electronic brokering system"- introduced in 1993; replacing the voice broker.
Both the EBS and Reuters Dealing systems offer trading in the major currency pairs, but certain currency pairs are more liquid and are traded more frequently over either EBS or Reuters Dealing. For instance, EUR/USD is usually traded through EBS while GBP/USD is traded through Reuters Dealing.
Cross currency pairs are generally not quoted on either platform, but are calculated based on the rates of the major currency pairs and then offset through the legs. Some exceptions are EUR/JPY and EUR/CHF which are traded through EBS and EUR/GBP which is traded through Reuters. 1, 2 , 3 , next
Not all participants have the power to set prices as market makers. Some just buy and sell according to the prevailing exchange rate. They make up a substantial allotment of the volume being traded in the market.
This is the case of companies and businesses of any size from a small importer/exporter to a multi-billion Dollar cash flow enterprise. They are compelled by the nature of their business - to receive or make payments for goods or services they may have rendered - to engage in commercial or capital transactions that require them to either purchase or sell foreign currency.
Fund Managers, Hedge Funds and Sovereign Wealth Funds
With Forex trading surging in recent decades, and as more individuals earn their living trading, the popularity of riskier investment vehicles like hedge funds has increased. These participants are basically international and domestic money managers. They can deal hundreds of millions, as their pools of investment funds tend to be very large.
Because of their investment charters and obligations towards their investors, the bottom line of the most aggressive hedge funds is to achieve absolute returns besides of managing the total risk of the pooled capital. Foreign exchange advantage factors like liquidity, leverage and relatively low cost create a unique investment environment for these participants.
Generally speaking, fund managers invest on behalf of a range of clients including pension funds, individual investors, governments and even central banks. Also government-run investment pools known as sovereign wealth funds have grown rapidly in recent years.
Internet Based Trading Platforms
One of the great challenges to the institutional Forex and how exchange related businesses are being handled has been the emergence of the Internet-based dealing platforms. This medium contributed to form a diverse global market where prices and information are freely exchanged.
As evidenced by the emergence of electronic brokering platforms, the task of customer/order matching is being systematized as these platforms act as direct access points to pools of liquidity. The human element of the brokering process - all the people involved between the moment an order is put to the trading system until the moment it is dealt and matched by a counter party - is being reduced by the so called "straight-through-processing" technology.
Similar to the way we see prices on a Forex broker's platform, a lot of interbank dealing is now being brokered electronically using two primary platforms: the price information vendor Reuters introduced a web based dealing system for banks in 1992, followed by Icap's EBS - which is short for "electronic brokering system"- introduced in 1993; replacing the voice broker.
Both the EBS and Reuters Dealing systems offer trading in the major currency pairs, but certain currency pairs are more liquid and are traded more frequently over either EBS or Reuters Dealing. For instance, EUR/USD is usually traded through EBS while GBP/USD is traded through Reuters Dealing.
Cross currency pairs are generally not quoted on either platform, but are calculated based on the rates of the major currency pairs and then offset through the legs. Some exceptions are EUR/JPY and EUR/CHF which are traded through EBS and EUR/GBP which is traded through Reuters. 1, 2 , 3 , next