The Traders of the Forex

The stock market can be defined with all the participants having access to the same rate. The foreign exchange market however is determined and divided into levels of access. At the top of the levels is the inter-bank exchange. The inter-bank market is composed of the largest firms in banking and finance and within the bank market are spreads which gives the difference between the bidding rate and the asking rate.

These are sharp as razors and are not available usually. It is also unknown to the players outside the circle. As one descends the access levels, the difference between the bidding and asking prices grows wider. This is because of the volume. If one trader can assure the guarantee of such large number transactions to give large amounts, they could demand a smaller amount of difference between the bidding and the asking rate and this is called a better spread.

The levels of access that makes up the foreign exchange market are also determined by line and its size. The line is the amount of money with which the traders are trading. The top-tier for the inter-bank market makes up the 53 percent of all the transactions traded.

After that level there are usually the presence of the smaller investment of other banks, then followed by the large multi-national companies and corporations which need to hedge the risk and also pay the employees in the different countries they are doing business.

They hedge huge funds, and even a little of the retail forex makers and even some of the retail forex market makers. As Galati and Melvin have it, "Insurance companies, pension funds, mutual and other institutions for investments have played a growing major role generally in the financial markets. In the foreign exchange market in particular since the early years of 2000."

He notes that in 2004, "Hedge funds have remarkably grown over the period 2001-2004 in terms of number and the overall size." The central banks of countries also participate in the foreign exchange market so as to align their currencies to their needs economically.

Also recently, foreign exchange brokers made huge amounts of business transactions, facilitating in the inter-bank trading and then matching the counterparts anonymously known for smaller fees. Nowadays, however, so much of the business has been moved on to a more efficient electronic system, such as Reuters, EBS dealing three thousand matching Bloomberg, the Chicago Mercantile Exchange and Trade Book.

A broker squawk box allows traders to listen in the on ongoing inter-bank business trading and is heard in most of the trading rooms, but the turnover is obviously smaller than just a few years back.

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