Question

What is the Forex or FX market, how is that market organized (e.g. exchange etc.), who are the major participants, when and where does it operate, how is it managed, and in what major cities is it located and what regions do these hubs control? What is the trading volume of this market, and how is trading conducted? (Please answer all questions!!!!!!!!!!!)

Answer 1

Answer )

What is the Forex or FX market?

The foreign exchange market is a virtual market place , where participants can trade ( buy, sale, speculate) in currencies of different countries. The market is mainly dominated by central banks, commercial banks, exim companies,Asset management companies and retail forex brokers.

How is that market organized ?

The market is made to trade in different currencies and instruments (contracts) derived from those currencies , follow a typical structure shown below.

who are the major participants ?

The participants in foreign exchange market are mainly divided into two levels, at the top is the interbank foreign exchange market, which is made up of the largest commercial banks and securities dealers. and bottom is retial market made up of registered brokers and retail investors.The major participants are:

• Central banks

• Government of countries

• Commercial banks

• Commercial companies

• NBFC

• Asset management companies

• Remitance companies

• Hedge fund

• Registered broker

• retail investors

when and where does it operate ?

The market is 24 hr and OTC in nature , it means the Forex market opeartes for 24 hours and 365 days .The over-the-counter (OTC) nature explain a number of interconnected marketplaces, where many currencies instruments are being traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), which depends on market maker.

how is it managed, and in what major cities is it located and what regions do these hubs control?

Unlike the stock exchnages and derivatives markets, the Forex market is not controlled by any central governing body, there are no clearing houses and there is no arbitration panel. the members of the market trade with each other on credit agreements system.The Forex dealers and brokers are licensed by financial services authorities in countries where they operate.

The major cities as hub for forex trade

London- united kingdom and european countries , New york- USA and canada ,Tokyo- Japan ,Singapore ,Zurich, Geneva- Switzerland and european countries, Hongkong - Asia and china,Sydney- Australia, paris - france and Mumbai.- India

What is the trading volume of this market, and how is trading conducted?

As per statement of CLS,a major settler of trades in the foreign exchange market, the average daily traded FX volumes to it reached $1.87 trillion between January and March of the current year 2018 . (source : reuters.com)

trading conduct with a fixed process as shown in figure below,

Different instruments are being traded in the Forex market , like SPOT trade ,Forward Contracts, Non-deliverable forward (NDF) , Swaps, Futures , options and many others.

The pre-trade preparation process initiates the documents requirements and business relationship between two parties.

The trade execution captures record of trading directly over a recorded phone line or through Internetbased systems .

The confirmation of trade is evidence of the terms of an FX or a derivative trade transaction.

The settlement of trade is the exchange of payments on the predediced date of the transaction. Some time bilateral settlement netting is used for combining all trades between two counterparties ,and calculating a single net payment in each currency.

Account reconciliation report at the end to ensure that a trade has settled properly .