Foreign exchange market structure

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In its most recent triennial central bank survey, the BIS (Bank f forexrebatebest International Settlements) said that the average volume of money market transactions autorebateforex April 2016 was $5.1 trillion, down from $5.4 trillion in 2013 Almost $2 trillion occurred in spot foreign exchange transactions (where most retail trading activity can be seen), $2.4 trillion was executed in foreign exchange swaps, forex broker rebate program $700 billion In order to better understand the structure and volume of the FX market, it would be helpful to see the volume breakdown of counterparties in the BIS survey There are three main types of counterparties: Other forexbrokerrebateprogram cashback forex create 51% of all trading volume Reporting dealers - 42% Non-financial investors - 7% BIS considers reporting dealers: ... Primarily large commercial and investment banks, (i) as well as securities firms that participate in the interdealer market and/or (ii) have frequent business dealings with large clients (e.g., large corporations, governments, and non-reporting financial institutions); in other words, reporting dealers are institutions that actively buy and sell currencies and OTC derivatives on their own account and/or in accordance with client demand Within the past 10 years, investment banks and commercial banks The boundaries have been blurred Citibank and JP Morgan Chase are considered investment banks, even though they also have commercial banking firms (with deposit and loan operations) Goldman Sachs and Morgan Stanley are also investment banks, even though they received funds from the Troubled Asset Relief Program (TARP) during the U.S. financial crisis BIS considers other financial institutions to be: ...all other financial institutions that Other financial institutions cover a wide range of branches, including "proprietary trading firms that invest, hedge or speculate on their own accounts. The category of other financial institutions also includes the "official financial institutions sector", such as the global financial institutions, such as the Federal Reserve, the European Union, the European Central Bank, the European Union, and the European Union. Central banks (Federal Reserve, European Central Bank, Bank of England, etc.), sovereign wealth funds (Abu Dhabi Investment Authority, China Investment Corporation, Saudi Arabia SAMAForeignHoldings, etc.), public sector international financial institutions (e.g. BIS, International Monetary Fund), development banks (World Bank, Asian Development Bank, European Bank for Reconstruction and Development, etc.) and institutions last but not least Equally important, the other remaining financial institutions also include "other" branches (e.g. retail consolidators) The 2013 BIS survey revealed a major surprise, namely another major breakthrough in the trading activity of "other financial institutions" For the first time in the 2010 survey, other financial institutions surpassed other reporting dealers (e.g., interdealer market transactions) as the primary counterparty type in the triennial survey In 2013, foreign exchange dealers transactions with such customers grew from $1.8 trillion in 2010 to $2.8 trillion, an increase of 48% BIS considers non-financial investors to be. ...any counterparty other than those listed above, primarily non-financial end-users, such as corporations and non-financial government agencies may also include private individuals who trade directly with reporting dealers for investment purposes, whether the transactions are conducted by reporting dealers on online retail trading platforms or by other means (e.g., giving trade orders by cell phone) Currency transactions Continued concentration in several international financial centers; the BIS announced that in April 2016, 77% of foreign exchange transactions were conducted at sales desks in five regions - the UK, the US, Singapore, Hong Kong SAR and Japan - up from 75% in April 2013 and 71% in April 2010 If this content is confusing, remember that the majority of business in the currency markets is conducted by large banks The other two important players are various global central banks and sovereign wealth funds (state-owned investment funds often have commodity export revenues or central bank foreign exchange reserves) These large players tend to be market makers Major banks provide two-way (buy/sell) FX prices to EBS, Reuters, and their internal platforms Central banks and sovereign wealth funds usually step in for specific reasons If a larger order needs to be filled Central banks may become involved in the currency market if a larger order needs to be filled and the order is likely to disrupt the market, or if the national currency becomes too weak or too strong Sovereign wealth funds may trade currencies for speculative purposes or as a means of entering and exiting other currency investment strategies
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