How much do big banks trade in the forex market?
After reading various financial blogs, you must have got an idea that the Forex market or the foreign exchange market is an easy way of making money. However, you might be disheartened to know that this not entirely true. Since you’re participating against some major players in the Forex market, governments and the big banks, winning becomes a matter of question. Now the question that must be bothering you is ‘how much do big banks trade in the forex market’? Well, according to some recent reports, the daily turnover is around $4 trillion per day and among this figure, half of it is made up by the commercial banks. Though it’s certainly possible to beat the big banks, but it is not that easy.
What are the three tiers of the Forex market?
When the question is ‘how much do big banks trade in the forex market’, a certain element of uniqueness comes into play. The Forex market is categorized into various tiers of access. At the zenith, is the largest piece of pie, shared by the security traders and the commercial banks. The banks and the traders account for 54% of the transactions of the Forex market. The reason why they occupy the pinnacle is that they have the best spread as they have a guaranteed huge number of transactions with enormous amounts.
The next tier is occupied by the inter bank market. Banks trading for themselves or propriety desks comprise the trading activities in this tier. Next are the commercial companies who have more of a long term impact than short term. Though they trade small amounts everyday, these transactions affect the market a lot.
The last tier is occupied by the central banks that do not trade as frequently as the daily traders since they have more leverage. Due to the nature of their institution and the consistent flow of currency they can never go bankrupt from a day’s loss. On the contrary, individuals are more prone to big losses from one bad trade. The primary motive of the Central bank behind trading in the Forex market is to track the money supply and maintain stability within the Forex market.
The answer to this question ‘how much do big banks trade in the forex market’ is at large. They invest a huge amount of money and can also predict market fluctuations. They consistently earn profits as they can easily foresee the behavior of the financial currencies during a day. The big banks make up the majority of the trades and cover the highest tiers of access.
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