One of the specifications of forex market is that it is divided into several levels of access. The top is market between the banks, which consists of the largest investment banking companies. Within this market the so called “spreads” or the difference between the “ask” and the “bid” prices, are razor sharp and normally not known to players outside this circle.
The general rule is that descending the levels of access, the difference between the prices widens. This is caused by the volume of the traded currencies. When a trader guarantees large numbers of transactions for large amounts, he/she can demand a much smaller spread. These levels of access to the forex market are determined mainly by the so called “size of the line” or the amount of money they are trading with. The highest level inter-bank market accounts for about 50% of all transactions in forex. The next level is presented by usually smaller investment banks, followed by large multi-national corporations which main reason for participation is to hedge risk and pay employees in different countries. Insurance companies, pension funds, mutual funds, and other similar institutional investors are playing more and more significant role in forex. And the other very important participants in the market are central banks which need is to align currencies to their economic needs.
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October 29, 2017 at 8:52 AM