The foreign exchange market is a globally dispersed market with the relative value of different currencies. Unlike other markets, foreign exchange does not centrally handle depository or redemption. Instead, these transactions were conducted by several market participants in several places. It is rare for the value of any two currencies to be the same as the other, and it is rare for any two currencies to maintain the same relative value for more than a short period of time. In the case of foreign exchange, the exchange rate between the two currencies is often changing.
For example, on January 3, 2011, 1 Euro was worth about $1.33. On May 3, 2011, 1 Euro was worth about 1.48 US dollars. During this time, the value of the euro relative to the dollar rose by about 10%.
The main participants in the foreign exchange market: From the perspective of the main body of foreign exchange transactions, the foreign exchange market is mainly composed of the following participants:
(1) Foreign exchange banks: Foreign exchange banks refer to banks designated or authorized to operate foreign exchange business by central banks or monetary authorities. A foreign exchange bank is usually a commercial bank. It can be a domestic bank that specializes in foreign exchange, a domestic bank that also operates foreign exchange business, or a branch of a foreign bank in the country. Foreign exchange banks are the most important participants in the foreign exchange market, and their foreign exchange transactions constitute a major part of the foreign exchange market activities.
(2) Foreign exchange dealers: Foreign exchange dealers refer to trading companies or individuals that buy or sell foreign money orders. Foreign exchange dealers use their own funds to buy and sell foreign exchange bills, from which they can obtain bid-ask spreads. Foreign exchange dealers are mostly trust companies, banks and other businesses, as well as companies and individuals specializing in such businesses.
(3) Forex broker : A foreign exchange broker refers to an intermediary who facilitates foreign exchange transactions. It is between the foreign exchange banks, foreign exchange banks and other participants in the foreign exchange market. It does not trade foreign exchange itself, it only connects foreign exchange buyers and sellers, facilitates transactions, and collects commissions from them. Forex brokers must be approved by the central bank of the country in which they operate.
(4) Central Bank: The central bank is also the main participant in the foreign exchange market, but its main purpose in participating in the foreign exchange market is to maintain exchange rate stability and rationally adjust the international reserve. It adjusts the supply and demand of funds in the foreign exchange market by directly participating in the foreign exchange market. Relationship, so that the exchange rate is maintained at a certain level or limited to a certain level. The central bank usually sets up a foreign exchange parity fund. When the market for foreign exchange is over-supply, when the exchange rate rises, it sells foreign currency and recovers the local currency. When the market exceeds supply and the exchange rate falls, it buys foreign currency and puts the local currency. Therefore, in a sense, the central bank is not only a participant in the foreign exchange market, but also an actual manipulator in the foreign exchange market.
(5) Foreign exchange speculators: Foreign exchange trading of foreign exchange speculators is not based on the actual needs of international payment, but uses various financial instruments to make a certain margin in the exchange rate changes to pre-buy and pre-sell, and earn exchange rate differences.
(6) Actual foreign exchange suppliers and actual demanders: The actual suppliers and actual demanders of foreign exchange in the foreign exchange market are individuals or companies that use the foreign exchange market to complete international trade or investment transactions. They include: importers, exporters, international investors, multinational companies and tourists.