What does the structure of foreign exchange market include?

what is the structure of the foreign exchange market?

the structure of the foreign exchange market is very complicated to analyze.

to put it simply, there are buyers and sellers in any market, which is necessary.

in addition, there are dealer platforms and banks, and sometimes banks are dealers themselves.

in addition, there is a trading market and there is a regulatory body.

The central bank

is responsible for issuing domestic currency, specifying the supply amount of the currency, holding scheduled foreign exchange reserves, and maintaining the value of the domestic currency to the outside world. Under the floating exchange rate system, the central bank is often forced to buy or sell foreign exchange to intervene in the foreign exchange market in order to maintain the order of the domestic market. The central bank sometimes intervenes in the open market in order to adjust the amount of money in the country, or for policy needs. The intervention basically holds a different position from the market and the public. Usually, there is no special factor, and the central bank will not take the initiative to intervene. Intervention in the foreign exchange market can only have a temporary effect, that is, the exchange rate will not rise or fall too fast, but it cannot change the long-term basic trend of the market.

Banks

In any region, regardless of whether the region is a major market for foreign exchange, the general trading of small amounts of cash and cheque exchange are basically monopolized by local banks. The main business of the bank's foreign exchange department is to convert the customer's assets and liabilities in commercial and financial transactions from one currency to another. This conversion is handled by spot trading or forward trading. Because there are many banks engaged in foreign exchange trading, foreign exchange trading is becoming more and more popular.

foreign exchange brokers

foreign exchange is the same as the stock market. In any active market, there are many brokers, who are called brokers in the United States. They only negotiate exchange agreements for foreign exchange trading for customers for the purpose of collecting commissions, and attract and match buyers and sellers to buy and sell directly or indirectly through the contact of foreign exchange brokers.

foreign exchange investors

the so-called foreign exchange investors, in order to predict the rise and fall of the exchange rate, engage in large-scale foreign exchange trading with a small amount of margin through SPOT, FORWARD or FUTUERS trading, and when the market is bullish, they buy first and then sell; When a bear is bearish, it sells first and then makes up for it, earning the price difference in the middle with very small fluctuations and gaining huge profits. Therefore, foreign exchange investors are often the supply and demand of major foreign exchange. What is the structure of the foreign exchange market?

How to describe this structure? The foreign exchange market is a complete market, which is composed of central banks, investment banks, dealers, brokers, investors and so on.

What does the implementation mechanism of the foreign exchange market include?

Hello, the implementation mechanism of the foreign exchange market is an organic whole composed of various elements, which has its own formation and implementation mechanism, including trading mechanism, exchange rate formation mechanism, supply and demand mechanism and risk.

(1) supply and demand mechanism, the relationship between supply and demand of foreign exchange is the main basis for the formation of market exchange rate, which in turn regulates the supply and demand of foreign exchange, which is the core of the supply and demand mechanism.

(2) exchange rate mechanism refers to the contact and interaction between exchange rate fluctuation and the change of foreign exchange supply and demand in foreign exchange market transactions.

(3) Efficiency mechanism is a mechanism that can promote fair, just and fast transactions in foreign exchange market and promote the rational allocation of funds.

(4) the risk mechanism mainly refers to the mutual contact and interaction between the increase and decrease of risks and exchange rate changes in foreign exchange transactions. In short, the above four mechanisms are not isolated from each other, but linked and interacted with each other. What is the structure of the foreign exchange market?

The foreign exchange market is a decentralized trading market.

Stocks and futures are centralized trading markets with exchanges. Centralized trading places such as Shanghai Stock Exchange and Zhengzhou Commodity Futures Exchange match all the buyers and sellers, and the core of centralized trading is that there is only a single quotation. In the foreign exchange market, there is no single price for a currency at any time, and different people quote different prices. The quotation does not need to enter a single quotation centralized market like the Shanghai Stock Exchange.

hierarchy of foreign exchange market

Since everyone quotes separately, there is no global unified exchange for foreign exchange, but it is not as chaotic as imagined. Through the different hierarchical structure of the foreign exchange market, market participants at all levels can be reasonably organized. I simply make a hierarchical structure chart of the foreign exchange market, as shown below:

Let's interpret the hierarchical chart one by one.

1. Major large banks

At the top of the foreign exchange market hierarchy is the large interbank market. The world's major banks, such as Bank of America, Barclays Bank, Citibank, Deutsche Bank, HSBC, JPMorgan Chase, Royal Bank of Scotland, BNP Paribas, ABN Amro, etc., constitute the upper main force of foreign exchange transactions. Participants in this level trade directly with each other or electronically through EBS and Thomson Reuters.

2. EBS and Thomson Reuters

Reuters is probably the most familiar trading system for foreign exchange traders in China Bank, Reuters Dealing 3 Spot

Matching. EBS and Reuters are ECN systems specially designed for top banks, accounting for nearly 7% of the spot transactions in the foreign exchange market. EBS and Reuters are inter-bank quotation platforms, which are not used by retail investors.

when it comes to the global interbank foreign exchange brokerage platform adopted by bank users, only EBS and Reuters are the dominant platforms. Compared with Reuters, EBS is more competitive in US dollar, Japanese yen and euro zone, while Reuters dominates the pound zone. EBS accounts for 7% of US dollar interbank transactions and 9% of Japanese yen interbank transactions.

3. Small and medium-sized banks

Not only large banks will participate in foreign exchange transactions, but also small and medium-sized banks at all levels will participate in transactions through EBS or Reuters. Although small and medium-sized banks and ICBC, a cosmic bank, can't be compared, they also have foreign exchange trading business.

the above three levels are called the inter-bank foreign exchange market. Banks participating in the inter-bank foreign exchange market can see their respective interest rates, but this does not mean that any party can make a deal at those prices. Like real life, the inter-bank market interest rate mainly depends on the established credit relationship between trading partners. The higher your credit rating, the better your reputation in the interbank market, and then you can get more favorable interest rates.

4. Participants at the level of retail market makers, retail ECN, hedge funds and commercial companies

are institutions that ordinary investors can frequently contact. Because these institutions have no close credit relationship with the interbank market, they have to trade with commercial banks.

with the rapid development of internet technology, ECN serving small banks, large investment institutions and hedge funds began to appear, including Currenex, Fxall, Hotspot and so on. They have their own business priorities. For example, FXConnect is mainly aimed at fund managers, while Currenex is fully committed to developing institutional customers. Therefore, the traditional boundaries are gradually blurred. Even EBS and Reuters are facing more and more competitors.

5. Retail traders

Fans, you, me, Lao Wang next door, we are all retail foreign exchange traders. What are the topics of participants in China's foreign exchange market?

Participants in China's foreign exchange market include four subjects:

Generally speaking, anyone who conducts trading activities in the foreign exchange market can be defined as a participant in the foreign exchange market. However, the main participants in the foreign exchange market are as follows: foreign exchange banks or central banks, foreign exchange brokers and customers.

1. Foreign exchange banks. Foreign exchange banks are the primary participants in the foreign exchange market, including professional foreign exchange banks and some large commercial banks designated by the central bank without foreign exchange trading departments.

2. Central Bank. The central bank is the ruler or regulator of the foreign exchange market.

3. foreign exchange broker. Foreign exchange brokers are intermediaries between the central bank, foreign exchange banks and customers, and they have very close contact with banks and customers.

4. customers. In the foreign exchange market, all companies or individuals who conduct foreign exchange transactions in foreign exchange banks are customers of foreign exchange banks. What are the main contents of the fundamental analysis of the foreign exchange market?

The fundamental analysis of the foreign exchange market is mainly the macro-economic analysis. Including the analysis of the troika (consumption, investment, import and export) that drives the economy, and the analysis of a country's economic policy (monetary policy, fiscal policy, exchange rate policy). The reason why the non-farm employment data in the United States have received the most extensive attention is that if the employment situation of residents is improving, the consumption level will be raised, thus stimulating economic development and raising inflation. The purpose of economic policy formulation is to ensure that inflation is at a stable level and employment is guaranteed. If the employment data is improving, * * * will use three magic weapons (reserve ratio, open market operation and rediscount) and interest rates to tighten monetary policy and reduce the total amount of funds. The functions of the foreign exchange market include several aspects. What are the participants in the foreign exchange market and the implementation process?

the Foreign Exchange Market refers to the place where foreign exchange is traded. It is an important part of the international financial market. Through the foreign exchange market, on the one hand, international monetary payment and capital transfer can be realized, international economic transactions can be ensured smoothly, and economic internationalization and international economic integration can be promoted; On the other hand, as a hotbed of international foreign exchange speculation, the foreign exchange market is also a breeding ground for instability in the international financial market. As the most active part of the international financial market, it is a barometer of international finance and international capital flow, and the activities of the foreign exchange market provide an important basis for countries to formulate and adjust their foreign economic development strategies.

participants in the foreign exchange market

1. Foreign exchange banks

Foreign exchange banks are the main body of the foreign exchange trading market. Including domestic commercial banks and other banks that specialize in or concurrently engage in foreign exchange business, branches of foreign banks in their own countries and other financial institutions that handle foreign business. In the foreign exchange market, foreign exchange banks are not only intermediaries of foreign exchange transactions, but also major suppliers and demanders in the foreign exchange market.

2. Foreign Exchange Broker

a foreign exchange broker refers to a company or an exchange dealer who specializes in introducing transactions or buying and selling foreign exchange on behalf of customers and collects handling fees from them. They are familiar with the situation of foreign exchange supply and demand, and use skilled foreign exchange trading skills and modern communication tools to urge a variety of foreign exchange suppliers and demanders to find suitable counterparties and appropriate transaction prices. Because foreign exchange brokers often engage in large foreign exchange transactions, they have the closest contact with foreign exchange banks. There are both foreign exchange brokers who use their own funds to participate in the trading of foreign exchange intermediaries and foreign exchange brokers who only collect commissions.

3. Actual foreign exchange suppliers and demanders

Microeconomic entities engaged in import and export trade, investors, speculators, tourists, students studying abroad and immigrants are all actual foreign exchange suppliers and demanders. Foreign exchange banks and central banks are also actual foreign exchange suppliers and demanders. Foreign exchange demand mainly includes: ① buying foreign goods; (2) purchasing foreign services; (3) Foreigners repatriate the profits from local direct investment and the interest from indirect investment; (4) the unilateral transfer of the country to foreign countries; ⑤ Domestic enterprises make long-term investments or short-term loans to foreign countries; ⑥ The country has increased its foreign exchange reserves. The foreign exchange supply mainly includes: ① the export of domestic goods and the acquisition of creditor's rights expressed in foreign currency; ② Export of domestic services; (3) Chinese people will repatriate dividends and interest earned from foreign investment; ④ Unilateral transfer of foreign countries to their own countries; ⑤ Foreign enterprises make long-term investments or short-term loans to their own countries; ⑥ The country * * * reduces foreign exchange reserve assets.

4. Central Bank

As a national bank, the central bank, on the one hand, exercises the function of international reserve management, acts as an agent of its official foreign exchange reserves and becomes a general supplier and demander of the foreign exchange market; on the other hand, it becomes a supervisor, intervener and manipulator of the foreign exchange market in order to stabilize the exchange rate, regulate the money supply and realize monetary policy. In some countries, the competent authorities act as interveners and manipulators in the foreign exchange market. Does the foreign exchange market include foreign stocks?

Of course it does.

Foreign exchange is a creditor's right held by the monetary administrative authorities (central bank, monetary management institutions, foreign exchange stabilization fund and the Ministry of Finance) in the form of bank deposits, treasury bonds of the Ministry of Finance, long-term and short-term securities and so on, which can be used in the event of a balance of payments deficit.

including foreign currency, foreign currency deposits, foreign currency securities (* * * government bonds, treasury bonds, corporate bonds, stocks, etc.) and foreign currency payment vouchers (bills, bank deposit vouchers, postal savings vouchers, etc.). What are the risks in the foreign exchange market?

One of the manifestations of foreign exchange risks is the risk of foreign exchange transactions. Foreign exchange risk is caused by the exchange of domestic currency and foreign currency. The risks borne by foreign exchange banks engaged in foreign exchange trading are mainly foreign exchange risks. The same risks will occur when enterprises other than banks make loans or borrowings in foreign currencies and conduct foreign exchange transactions with foreign currency loans and borrowings. Individuals buying and selling foreign exchange also have risks.

the second manifestation of foreign exchange risk is that the domestic currency is exchanged with foreign currency for future foreign exchange transactions, and there is a risk because the applicable exchange rate for future transactions is not determined. This is the risk that occurs when general enterprises conduct trade transactions and non-trade transactions in foreign currency, so it is also called "transaction settlement risk".

the third manifestation of foreign exchange risk is: how to evaluate the foreign currency when an enterprise conducts accounting treatment and makes final accounts of foreign currency claims and debts. For example, when handling the final accounts, when evaluating creditor's rights and debts, due to the different exchange rates, there will be differences in book profits and losses, so it is also called "evaluation risk" or "foreign exchange translation risk".

the fourth performance of foreign exchange risk is: economic risk-refers to the risk that the expected future income of an enterprise or individual may be lost due to exchange rate changes.

the fifth manifestation of foreign exchange risk is: national risk, that is, political risk. It refers to the possibility of losses caused by the termination of foreign exchange transactions of enterprises or individuals due to state coercion.