Main Players Of The Forex Market
Banks:
These are the main and oldest players in the Forex . The share of commercial banks in transactions decreased by about 20% in 10 years but they remain the majority. The banks have mainly a role of broker and intervene in the foreign exchange market to transmit client orders that are other financial institutions, companies or individuals. In his transactions, banks are remunerated on the spread offered to the customer. Banks are also involved with their own capital in speculative operations, but this share is still low in activity. The banks most active in the Forex are UBS, Citigroup, HSBC and Deutsche Bank.
Other financial institutions or institutional investors:
What are hedge funds?, insurance companies, pension funds, the Commodity Trading Advisors (CTAs) ... Their share in trade on the Forex has doubled in 10 years and in 2007 they represented about 40% of transactions. These institutions use the Forex in two ways. The first is as an asset class in itself. They then speculate on future currency for the purpose of deriving capital gains. The second is as a hedging instrument. Forex is then used to protect against currency risk when these institutions invest abroad.
Multinational Enterprises:
With globalization companies have resorted to to settle their forex expenditure in foreign currencies. The main goal is for them to hedge against currency risk. They use this mainly for derivatives rather than the spot market. Larger companies are also developing activities speculation on currencies . The share of transactions made €‹€‹by companies increased slightly in 2007 and represented approximately 17% of the total volume.
Central banks:
These are independent bodies that manage the monetary policy of their countries. The main ones are the U.S. central bank ( FED ), the European Central Bank ( ECB ), Bank of England ( BoE ) and the Bank of Japan ( BoJ ). They account for their own accounts, to governments or supranational organizations like the International Monetary Fund (IMF), World Bank or the Bank for International Settlements (BIS). Their main activity is to manage the foreign reserves of the various agencies but they sometimes occur independently or together to influence the currency in order to maintain some stability.
Individuals:
Technological advances now allow individuals to invest in forex. The activity of individuals has developed considerably since 2002 and growing by about 30% per year . Once marginal activity of individuals now represents about 2% of the total volume. Individuals most often occur through trading platforms on the internet related to broker dealers ( retail brokers ) who pool their orders and then forward to the big banks that execute orders on the interbank market.
Automated Trading:
The use of automated trading, also known as algorithmic trading, has grown rapidly since 2005. The automated trading now represents just over 20% of the volume of cash transactions. This phenomenon, spurred by the advent of electronic trading platforms has allowed some financial institutions, particularly hedge funds, to take advantage of new strategies, such as high frequency operations. Most of these strategies are arbitrage strategies between the different liquidity providers which standardizes the courses offered but there are also trend-following strategies or return to equilibrium.
Meanwhile, many financial institutions have used algorithmic trading to enhance their effectiveness. For example, small cash transactions can be directed to the "engines of auto-negotiation", releasing the physical operators who can focus more on complex transactions, while hedging can be automated to improve risk management .
These are the main and oldest players in the Forex . The share of commercial banks in transactions decreased by about 20% in 10 years but they remain the majority. The banks have mainly a role of broker and intervene in the foreign exchange market to transmit client orders that are other financial institutions, companies or individuals. In his transactions, banks are remunerated on the spread offered to the customer. Banks are also involved with their own capital in speculative operations, but this share is still low in activity. The banks most active in the Forex are UBS, Citigroup, HSBC and Deutsche Bank.
Other financial institutions or institutional investors:
What are hedge funds?, insurance companies, pension funds, the Commodity Trading Advisors (CTAs) ... Their share in trade on the Forex has doubled in 10 years and in 2007 they represented about 40% of transactions. These institutions use the Forex in two ways. The first is as an asset class in itself. They then speculate on future currency for the purpose of deriving capital gains. The second is as a hedging instrument. Forex is then used to protect against currency risk when these institutions invest abroad.
Multinational Enterprises:
With globalization companies have resorted to to settle their forex expenditure in foreign currencies. The main goal is for them to hedge against currency risk. They use this mainly for derivatives rather than the spot market. Larger companies are also developing activities speculation on currencies . The share of transactions made €‹€‹by companies increased slightly in 2007 and represented approximately 17% of the total volume.
Central banks:
These are independent bodies that manage the monetary policy of their countries. The main ones are the U.S. central bank ( FED ), the European Central Bank ( ECB ), Bank of England ( BoE ) and the Bank of Japan ( BoJ ). They account for their own accounts, to governments or supranational organizations like the International Monetary Fund (IMF), World Bank or the Bank for International Settlements (BIS). Their main activity is to manage the foreign reserves of the various agencies but they sometimes occur independently or together to influence the currency in order to maintain some stability.
Individuals:
Technological advances now allow individuals to invest in forex. The activity of individuals has developed considerably since 2002 and growing by about 30% per year . Once marginal activity of individuals now represents about 2% of the total volume. Individuals most often occur through trading platforms on the internet related to broker dealers ( retail brokers ) who pool their orders and then forward to the big banks that execute orders on the interbank market.
Automated Trading:
The use of automated trading, also known as algorithmic trading, has grown rapidly since 2005. The automated trading now represents just over 20% of the volume of cash transactions. This phenomenon, spurred by the advent of electronic trading platforms has allowed some financial institutions, particularly hedge funds, to take advantage of new strategies, such as high frequency operations. Most of these strategies are arbitrage strategies between the different liquidity providers which standardizes the courses offered but there are also trend-following strategies or return to equilibrium.
Meanwhile, many financial institutions have used algorithmic trading to enhance their effectiveness. For example, small cash transactions can be directed to the "engines of auto-negotiation", releasing the physical operators who can focus more on complex transactions, while hedging can be automated to improve risk management .
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