Forex is short for foreign exchange and it is a market where different currencies are exchanged. It is also divided into different levels that can be accessed by different people. Interbank market is the top level and those who can access it are usually commercial banks and the largest dealers. However, there are certain spreads which are actually the difference in bid and ask prices. Now, the interbank market spreads are known only to the people who belong to that circle and to no one else. As we go down the levels of access these spreads grow larger. The others that make the Forex market are multi-national corporations, smaller banks, pension funds, hedge funds and insurance companies, but there are also central banks that are in charge of aligning currencies in consistency with their own requirements.
Measuring Trade Impact
As for the commercial companies, their trades do not really impact on the market rates for they usually trade only small amounts. Nevertheless, this is the case when a short time period is considered, but if we look at their impact in the long run, we can see that they are actually quite a significant factor. The role of national central banks is also quite significant and they job is actually to control and prevent inflation, to control interest rates and money supply and they can also make use of their own reserves for the stabilization of the market.
The role of investment manager firms is to make the process of foreign securities currency exchange go smoother. For example, a manager bearing the international equity portfolio might need to purchase or sell a foreign currency so as to pay the foreign securities purchase. An investment manager firm could have more operations that are currency overlay specialized. Despite the fact that these firms are not really large, they can have a high value of assets that are under management and in this way they can make large trades.
There are also certain companies that are part of Forex but they are non-bank. What they usually do is offer currency exchange and international to companies, but to individuals as well. They are often called foreign exchange brokers. It is estimated that about fourteen percent of transfers in the United Kingdom are done through Foreign Exchange Companies and what they offer are cheaper payments and better exchange rates. Higher value services are also a part of their offer and these are the features that make their own point of selling.
To sum up, the number of Forex participants is truly large and these different participants can access the foreign exchange market on different levels. They are most often banks and commercial companies; however, insurance companies, multinational corporations and some non-bank companies are also Forex participants. Nevertheless, the role of all these participants is to enable the existence of the market and to ease the transaction processes for individuals and for companies as well as to make international sells, make the purchases and exchange the currencies.