| The process of trading currencies around the world is | | | | and investment banks do not only trade on behalf of |
| no longer simply a matter of banks exchanging | | | | their customers, but also trade on their own behalf |
| currencies amongst themselves and today involves a | | | | through proprietary desks, whose sole purpose is to |
| very large number of different players with a wide | | | | make a profit for the bank. It should always be |
| variety of reasons for wishing to trade in currencies. | | | | remembered that commercial and investment banks |
| Some for example will need to exchange currencies | | | | have exceptional knowledge of the marketplace and |
| for the traditional purpose of buying goods and | | | | the ability to monitor the activities of other participants |
| services overseas, but others will be participating in the | | | | such as the central banks, investment funds and |
| market simply to earn short term profits from | | | | hedge funds. |
| movements in the market or to influence exchange | | | | Of course the commercial banks have been at the |
| rates. | | | | center of the Forex market for many years now and |
| Whatever the reason for a player's participation in the | | | | their role has remained basically the same throughout |
| market, this diverse group affects the supply and | | | | this time. However, the arrival of the first electronic |
| demand within the market, and thus the exchange | | | | brokering systems (Reuter's 'Monitor Dealing Service' in |
| rates at any given moment in time, and so it is | | | | the early 1980s and Reuter's 'Dealing 2000-1' in 1989) |
| important to understand just who the key players are. | | | | started to change the face of the market. It was |
| Here, we look at the most important players - the | | | | however the arrival of Reuter's 'Dealing 2000-3' |
| commercial banks. | | | | system in 1992, quickly followed by the launch of |
| The commercial banks account for by far the largest | | | | 'Electronic Brokering Services (EBS)' in 1993 with the |
| proportion of all trading of both a commercial and | | | | ability to automatically match buy and sell quotes from |
| speculative nature and operate within what is known | | | | dealers that changed the face of the Forex market |
| as the interbank market. This is essentially a market | | | | and the very nature of the market. |
| composed solely of commercial and investments | | | | Electronic trading systems now allow dealers to |
| which buy and sell currencies from each other. Strict | | | | conduct a number of trades simultaneously and to |
| trading relationships exist between the member banks | | | | trade with much tighter spreads, greater efficiency, |
| and lines of credit are established between these | | | | lower costs and, most importantly, far greater |
| banks before they are permitted to trade. | | | | transparency than was provided by the old telephone |
| Commercial and investment banks are a fundamental | | | | dealing system. |
| part of the foreign exchange market as they not only | | | | The advantages of electronic dealing are clear for all |
| trade on their own behalf and for their customers, but | | | | to see, but it is the accessibility of the system and that |
| also provide the channel through which all other | | | | fact that much greater access has been granted to it |
| participants must trade. They are in essence the | | | | that has allowed many more players to enter the |
| principal sellers within the Forex market. | | | | market alongside the commercial and investment |
| One important thing to remember is that commercial | | | | banks. |