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Learn Forex
Forex Traders Come In Various Shapes And Sizes
Although there is no centralized Forex market and trading involves many different market makers rather than just a few specialists, there in nonetheless both a structure and a hierarchy to the foreign currency exchange market.
The foreign currency market is dominated by the InterBank market which represents the greatest volume of trading and mainly involves the currencies of the G8 countries. Together, these represent approximately 65 percent of the world economy. In the InterBank market major banks trade with each other on a credit-approved basis with lines of credit clearly established between individual banks. Trading is conducted through InterBank brokers and electronic brokerage systems or Reuters and the rates at which trading takes place are visible to all of the participants.
Below the InterBank market participants, such as smaller banks and corporations, have to trade through commercial banks. In this case however there are not normally any established lines of credit and this means that traders frequently trade at less competitive rates and are usually tied to using a single bank for all their foreign exchange dealings.
Until just a few years ago the foreign exchange market was not simply dominated by the major banks but was also very much an 'old boys club' which it was very extremely difficult to gain entry to. Today however technology has altered the market considerably and smaller investors can now get into the market and take advantage of the opportunities which were at one time only available to the members of 'the club'.
Access to the market has also been eased considerably in recent years by the changing nature of the market itself. Previously foreign exchange dealing was very much an activity associated with international trade and was seen as simply servicing the import and export markets. Now however investment plays a major part in the market and substantial capital sums flow between countries through participants such as mutual funds, institutional investors, insurance companies and others.
The size and extraordinarily diverse nature of the market nowadays, along with the ease of trading brought about by advances in technology, brings both high liquidity and price stability to the market and, unlike many other markets, the Forex market always boasts a large number of both sellers and buyers who together create an orderly market.
Closing a Position: The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of the position.
Fill Price: The price at which a buy or sell order was executed.
Limit Order: An order to execute a transaction at a specified price (the limit) or better. A limit order to buy would be at the limit or lower, and a limit order to sell would be at the limit or higher.
Selling Short: A situation where a currency has been sold with the intent of buying back the position at a lower price to make a profit.
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