Participants of the Forex market
All participants of the Forex market can be divided into two categories: active (market makers) and passive. Commercial banks and brokerage firms are active participants directly affecting the pricing and all the other market processes.
Passive Forex participants execute currency transactions at the prices offered by market makers. They buy and sell currency to pay international export-import contracts, to invest, to speculate on the price fluctuations, to engage in tourist business, etc.
Participants of the Forex market
Commercial banks are the major participants of the Forex international currency market since they have a vast array of assets. They may or make transactions in the interbank exchange or become intermediaries between buyers and sellers. Bank account holders directly request foreign exchange operations: the currency exchange, depositing, or taking loans in different currencies.
Thus, banks accumulate the aggregate supply and demand for market operations like purchase/sale of currency. If banks cannot meet the needs of their customers on their own, they borrow funds from the other banks. Thus, Forex is not a currency exchange in its classical sense, but is rather a market of interbank transactions.
The main task of the central banks is regulation of the currency market including avoidance of sharp fluctuations in exchange rates, maintaining the balance of import/export, etc. Their influence can be direct (through the level of currency intervention) and indirect (through regulation of the interest rates and production volumes of the monetary supply.)
In the currency market, the central banks verify or correct the existing rate of a national currency. Making a profit is not their priority interest. They can act through commercial banks or to carry out joint intervention activities. Nowadays the Central banks of USA, Japan, England and the European Central Bank have the most influence.
The function of brokerage firms is a convergence of foreign currency for buyers and sellers to get a loan, deposit, or conduct foreign exchange transactions. For their services, these firms charge a fee as a percentage of the transaction.
Firms committing operations in foreign trade
Firms working with foreign buyers and suppliers constantly need to buy or sell currency. They are the most stable customers of the banks in terms of conversion operations executing out and placing available assets in short-term deposits. In addition, these firms usually are not able to trade independently on the currency market and conduct all transactions through banks.
Companies committing international investment
These companies constitute the major investment funds that place their assets in stocks of the large corporations or governments with a view to profit. The most well-known international investment funds are «Dean Witter» and «Quantium». Large corporations with foreign industrial investments that create branches and open joint ventures worldwide (Xerox, General motors, Nestle, etc.) also belong to this type of companies.
It is a structural unit of the foreign currency market where the exchange rate formation and currency exchange transactions of legal entities occur. Not only currency can be traded, but also derivative financial instruments (futures, options, etc.).
Intermediary firms conduct operations in the foreign exchange market on behalf of individuals who have not enough assets to participate independently in the auction. All transactions in the dealing companies are speculative and aimed at resale of currencies for profit.
Private individuals are the currency market participants making purchase/sale transactions for speculative purposes and conducting non-trade foreign exchange transactions (salary transfer, foreign tourism, etc.).