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by value
Currency distribution of global foreign exchange market turnover[70][4]
Rank Currency ISO 4217 code
(Symbol) % daily share
(April 2013)
1
United States United States dollar
6
Switzerland Swiss franc
CHF (Fr)
5.2%
7
Canada Canadian dollar
CAD ($)
4.6%
8
Mexico Mexican peso

titute a growing segment of this market with the advent of retail foreign exchange platforms, both in size and importance. Currently, they participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated in the USA by the Commodity Futures Trading Commission and National Futures Association, have in the past been subjected to periodic foreign exchange fraud.[66][67] To deal with the issue, in 2010 the NFA required its members that deal in the Forex markets to register as such (I.e., Forex CTA instead of a CTA). Those NFA members that would traditionally be subject to minimum net capital requirements, FCMs and IBs, are subject to greater minimum net capital requirements if they deal in Forex. A number of the foreign exchange brokers operate from the UK under Financial Services Authority regulations where foreign exchange trading using margin is part of the wider over-the-counter derivatives trading industry that includes Contract for differences and financial spread betting.

There are two main types of retail FX brokers offering the opportunity for speculative currency trading: brokers and dealers or market makers. Brokers serve as an agent of the customer in the broader FX market, by seeking the best price in the market for a retail order and dealing on behalf of the retail customer. They charge a commission or mark-up in addition to the price obtained in the market. Dealers or market makers, by contrast, typically act as principal in the transaction versus the retail customer, and quote a price they are willing to deal at.

Non-bank foreign exchange companies[edit]
Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but rather currency exchange with payments (i.e., there is usually a physical delivery of currency to a bank account).

large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases.

Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. While the number of this type of specialist firms is quite small, many have a large value of assets under management and, hence, can generate large trades.

Retail foreign exchange traders[edit]
Individual retail speculative traders cons
It is estimated that in the UK, 14% of currency transfers/payments[68] are made via Foreign Exchange Companies. These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank.[69] These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.

rs.
Economic factors[edit]
These include: (a) economic policy, disseminated by government agencies and central banks, (b) economic conditions, generally revealed through economic reports, and other economic indicators.

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
Government budget deficits or surpluses: The marke

et comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Central banks[edit]
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

Foreign exchange fixing[edit]
Foreign exchange fixing is the daily monetary exchange rate fixed by the national bank of each country. The idea is that central banks use the fixing time and exchange rate to evaluate behavior of their currency. Fixing exchange rates reflects the real value of equilibrium in the market. Banks, dealers and traders use fixing rates as a trend indicator.

Banks and banking
Corporate finance
Personal finance
Public finance
v t e
Unlike a stock market, the foreign exchange market is divided into levels of access. At the top is the interbank market, which is made up of the largest commercial banks and securities dealers. Within the interbank market, spreads, which are the difference between the bid and ask prices, are razor sharp and not known to players outside the inner circle. The difference between the bid and ask prices widens (for example from 0 to 1 pip to 1–2 pips for a currencies such as the EUR) as you go down the levels of access. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier interbank market accounts for 39% of all transactions.[59] From there, smaller banks, followed by large multi-national corporations (which need to hedge risk and pay employees in d

Real estate market
Practical trading
Clearing house
Financial market participants
Financial regulation
Finance seriesifferent countries), large hedge funds, and even some of the retail market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size”.[64] Central banks also participate in the foreign exchange market to align currencies to their economic needs.

Commercial companies[edit]
An important part of the foreign exchange mark
Currencies are traded against one another in pait usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends: The trtainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations: As in other markets, t

Futures exchange
Hybrid security
Over-the-counter
Forwards
Options
Spot market
Swaps
Foreign exchange
Currency
Exchange rate
Other markets
Commodity market

Common stock
Preferred stock
Registered share
Stock
Stock certificate
Stock exchange
Voting share
Derivatives market
Credit derivative
Money market
Reinsurance market
Futures are standardized forward c

k of America Merrill Lynch 4.38%
8 United Kingdom Royal Bank of Scotland 3.25%
9 France BNP Paribas 3.10%
10 United States Goldman Sachs 2.53%
Foreign exchange trading increased by 20% between April 2007 and April 2010 and has more than doubled since 2004.[63] The increase in turnover is due to a number of factors: the growing importance of foreign exchange as an asset class, the increased trading activity of high-frequency traders, and the emergence of retail investors as an important market segment. The growth of electronic execution and the diverse selection of execution venues has lowered transaction costs, increased market liquidity, and attracted greater participation from many customer types. In particular, electronic trading via online portals has made it easier for retail traders to trade in the foreign exchange market. By 2010, retail trading is estimated to account for up to 10% of spot turnover, or $150 billion per day (see retail foreign exchange platform).

Foreign exchange is an over-the-counter market where brokers/dealers negotiate directly with one another, so there is no central exchange or clearing house. The biggest geographic trading center is the United Kingdom, primarily London, which according to TheCityUK estimates has increased its share of global turnover in traditional transactions from 34.6% in April 2007 to 36.7% in April 2010. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. For instance, when the International Monetary Fund calculates the value of its special drawing rights every day, they use the London market prices at noon that day.

Market participants[edit]

clays Investment Bank 10.91%
4 Switzerland UBS AG 10.88%
5 United Kingdom HSBC 7.12%
6 United States JPMorgan 5.55%
7 United States Ban
Financial markets
Philippine-stock-market-board.jpg
Public market
Exchange
Securities
Bond market
Bond valuation
Corporate bond
Fixed income

ign exchange traders
3.7 Non-bank foreign exchange companies
3.8 Money transfer/remittance companies and bureaux de change
4 Trading characteristics
5 Determinants of exchange rates
5.1 Economic factors
5.2 Political conditions
5.3 Market psychology
6 Financial instrume

year 1913, nearly half of the world's foreign exchange was conducted using the Pound sterling.[25] The number of foreign banks operating within the boundaries of London increased in the years from 1860 to 1913 from 3 to 71. In 1902 there were altogether two London foreign exchange brokers.[26] In the earliest years of the twentieth century trade was most active in Paris, New York and Berlin, while Britain remained largely uninvolved in trade until 1914. Between 1919 and 1922 the employment of foreign exchange brokers within London increased to 17, in 1924 there were 40 firms operating for the purposes of exchange.[27] During the 1920s the occurrence of trade in London resembled more the modern manifestation, by 1928 forex trade was integral to the financial functioning of the city. Continental exchange controls, plus other factors, in Europe and Latin America, hampered any attempt at wholesale prosperity from trade for those of 1930's London.[28]

During the 1920s, the Kleinwort family were known to be the leaders of the foreign exchange market; while Japheth, Montagu & Co., and Seligman still warrant recognition as significant FX traders.[29]

After WWII[edit]
After WWII, the Bretton Woods Accord was signed allowing currencies to fluctuate within a range of 1% to the currencies par.[30] In Japan the law was changed during 1954 by the Foreign Exchange Bank Law, so, the Bank of Tokyo was to become, because of this, the centre of foreign exchange by September of that year. Between 1954 and 1959 Japanese law was made to allow the inclusion of many more Occidental currencies in Japanese forex.[31]