Major Players on FOREX Market

Commercial Banks

These institutions support the major flow of exchange transactions. All other market makers have their accounts opened at the banks: in other words, all exchanging, depositing and crediting transactions made by market makers go through bank wire. Banks accumulate (through client operations) the total market demand for currency exchange and all monetary replacements, creating a kind of “offer” to other banks. Usually the banks do not limit their activity to execution of client orders only: quite often they make independent transactions, using their personal funds for these purposes. So, objectively the currency market is represented by a market of agreements between many banks. Further mentioning of directions for currency and other rates should be related to foreign exchange market.

Companies Performing Foreign Transactions

Companies, which take part in international trading, create stable demand for foreign currency (importers) and stable proposition of foreign currency (exporters). Moreover, they contribute to converting free foreign assets into short-term deposits. Most of these companies do not have direct access to currency market, as they make exchanging and depositing operations via commercial banks.

There are many companies that make depositing of foreign assets: investment funds, money market funds, international corporations. These companies are engaged into customized managing of various assets’ portfolios by purchasing securities of different governments and corporations. Dealing slang calls these companies simply “funds”. The most famous funds are “Quantum” Fund (George Soros) and “Dean Witter” Fund.

Great international corporations which make foreign production investments (creation of branches, joint companies, representative structures, etc.) belong to this group of market makers as well. The list of these corporations goes on with Xerox, Nestle, General Motors, British Petroleum and others.

Central Banks

Central banks are involved into currency regulation on the foreign market: protecting national currencies from swift “jumps”, supporting export/import balance, etc. Central banks may influence exchange market either directly (through currency intervention) or indirectly (by regulating monetary volumes and rates).

Currency Brokerage Companies

These companies specialize in matching buyers and sellers of foreign currency and in executing necessary exchanging/depositing operations for these clients. Brokerage companies take certain percentage from general volume of transactions as fee for providing their services.

Physical Bodies

Physical bodies may perform a wide range of non-trading operations in sphere of tourism, sending salaries, pensions, buying and selling the currencies they own, etc. Today, using the benefits of leverage trading physical bodies can even invest small capitals into Forex for getting income from quotes fluctuations on this market.

Margin Trading On FOREX Market

To encourage investors who have less than 1 million dollars to trade on Forex the mechanism of margin trading is used. This mechanism was introduced to world currency trading in 1986. Margin trading lies in buying/selling currencies, using leverage and deposit insurance, which allows traders to make trading contracts on huge sums without providing the real money for it. BUT every trader should remember that increasing leverage increases risk.

Investors with small and moderate deposit sums run Forex trading through the dealing companies. Usually the minimum one should have to start trading on currency market equals to 2,000 US dollars. Dealing company offers its clients a credit line (or “dealing leverage”) which profoundly exceeds the deposited sum. For example, a credit leverage of 1:100 allows to use the initial deposit of 10,000 dollars for trading 1,000,000 dollars. So, private capitals of investors make up only 1-3 % of the sums traded by them on the market. Even small profits on Forex turn into great revenues when compared to what is deposited by investors to get these profits. BUT once again, please remember that increasing leverage increases risk.

Let’s have a look at this example to clarify all details. You have 2,000 US dollars on your account. With the credit leverage of 100:1 you can open trading position of 200,000 dollars. At 11:00 A.M. US dollar rate to Swiss franc reached 1.4045 – 1.4050. You think that dollar has to grow, and give trading order to buy 100,000 dollars at this price. At 3:00 P.M. dollar rate becomes 1.4250 – 1.4255. You decide to close the position and sell your 100,000 dollars at a new price. After calculating pure income you find out that it is 2,000 Swiss francs (or about 1,400 US dollars).

This goes as 140% revenue from the deposited amount. When closing the position, this money goes to your trading account automatically. BUT we want to notify you one more time that increasing leverage increases risk – in this case you can get 100% drawdown – the lost of all trading capital.

Forex Advantages Compared To Other Markets

Forex has one crucial benefit over the equity market: Forex has no restrictions on short selling. Traders may go long or short, facing the market fluctuations, but the potential of getting income remains very high. This two-fold nature makes Forex attractive to most of the traders. Either the market is rising, or falling – smart and professional traders can be trading on it.

Commission

Another Forex benefit over the equity market is that on Forex, the FCM and RB are compensated for their services through the spread between the bid/ask prices.

Easy And Quick Diversification Out Of US Dollars.

The trade balance shows the net difference over a period of time between a nation’s exports and imports. When a country imports more than it exports, the trade balance will show a deficit, which is generally considered unfavorable to that nation’s currency. Many investors know that they should diversify some of their assets into foreign currencies, but to do so is difficult. Most U.S. banks, for example, do not offer foreign currency accounts. But by trading Forex, you instantly control hundreds of thousands of dollars worth of foreign currencies. For every $1,000 margin deposit, you can control up to $100,000 worth of Euros… or British Pounds… or whatever currency you believe will rise in the future.

What is FOREX

Today the currency exchange market (Forex) leaves all other world markets far behind in terms of trading volumes. For example, the daily turnover for securities is estimated at 300 billion US dollars, while Forex operates with turnovers of several trillions US dollars every day. But huge turnovers are not the only thing that makes Forex a very attractive market for investors. There are many other benefits:

• it is a global market;

• it has a very high liquidity: currencies are bought and sold within few seconds;

• currencies change all the time, giving a real possibility to close a proper trading deal;

• you can make trading contracts 24 hours a day;

• all transactions are done very quickly;

• no commissions are taken when you make a contract (there are no exchange fees on Forex, because brokerage companies get revenue from spread on buy and sell rates);

Forex market was created in 1971-1976 as an interbank “tool” used for operating huge monetary assets between the countries. At that time the rate of one currency to another was defined by mutually agreed exchange rate.

Many years have passed and today Forex turned into one of the major income sources for the banks. Such renowned banking institutions as Citibank, Chase Manhattan Bank, Barclays Bank, Sosiete Generale Bank & Trust, ABN-AMRO Bank report to get their biggest revenue from currency operations.

Modern technologies made Forex accessible to all investors. Acceleration in transfer of monetary assets and supersonic informational exchange combined with latest technological inventions made it possible to trade on Forex even with small capitals (starting from $100). That is why Forex attracted a new wave of small investors and this surely increased the liquidity of this market.