The Forex market is an international market directly between two parties (OTC, for its acronym in English). This means that it is a decentralized and self-regulated market with no central office exchange or clearing house, unlike the futures markets and shares. This structure eliminates fees for exchange and compensation, so reducing transaction costs.
Direct Forex market is made up of different members, with varied interests and needs, operating directly between them. These participants can be divided into two groups: the interbank market and the retail market.
The interbank market
The interbank market designates Forex transactions that occur between central banks, commercial banks and financial institutions.
Central Banks – National central banks (such as the US Federal Reserve or the European Central Bank) play an important role in the Forex market. As principal monetary authority, their role consists in achieving price stability and economic growth. Coneguirlo to regulate the supply of foreign exchange in the economy through the imposition of interest rates and reserve requirements. They also manage foreign exchange reserves of the country that can be used to influence market conditions and exchange rates.
Commercial Banks – Commercial banks (such as Deutsche Bank and Barclays) provide liquidity to the Forex market due to the volume of commercial transactions handled daily. These operations include the translation of foreign currencies according to the needs of customers while some are held for speculative purposes by negotiating table ownership of banks.
Financial Institutions – Financial institutions such as finance managers, investment funds, pension funds and brokerage firms operating with foreign currencies as part of their obligations in order to find the best investment opportunities for its clients. For example, a manager of a securities portfolio and international actions will have to engage in foreign exchange transactions for the sale of foreign operated.
The retail market
The retail market designates transactions between small speculators and investors. These transactions are executed through Forex brokers who act as agents between the retail market and the interbank market. The members of the retail market are hedge funds, corporations and individuals.
Hedge Funds – Hedge funds are private investment funds that speculate in various assets classes using leverage. Macro Hedge Funds aim to seek business opportunities in the Forex market and design and execute operations after making a macroeconomic analysis to examine the challenges affecting a country and its currency. Because of their high liquidity and their aggressive strategies, they are considered a major contributor to the dynamic Forex Market.
Corporations – They represent the companies that are engaged in import and export activities with their counterparts in foreign currencies. Their primary business requires buying and selling foreign currency in exchange for goods, exposing them to risks. Through the Forex market, they convert currencies and covered against future fluctuations.
Individuals – Individuals or investors Forex traders operate with their own capital to profit from speculation on future exchange rates. Mainly they operate through Forex platforms that offer accounts with low spreads, immediate execution and highly leveraged margin.