It would be naive to think that a private investor with a couple of thousand dollars in the account can become a participant in the Forex market. There is currency exchange at the cash desks of banks or purchase/sale assets on stock exchanges for them. This part is only a drop in the ocean, compared to the actual volume of currency exchange transactions. Forex is an interbank, over-the-counter foreign exchange market with a turnover that already exceeded $10 trillion daily in 2020. Its real participants are:
- Central banks of states. They perform operations to ensure the optimal exchange rate of the national currency (currency interventions).
- Commercial banks performing conversion operations (payment, deposit-credit, hedging) in the interests of customers. Additionally, banks also exchange currencies from their funds to meet the demands of retail customers and finance their investment activities. They are the main market participants (they account for more than 90% of the daily trading volume), so the international currency market is rightly considered interbank.
- Currency exchanges. In some countries, such exchange platforms operate separately, providing conversion operations between traders.
- Companies engaged in international trade or investments abroad. Only some of them have direct access to the market, and the rest work through commercial banks.
The real Forex currency market is served by a limited number of large information-dealing companies (examples are Bloomberg or Reuters). In these networks, participants receive quotes and make deals. Some of them do not provide gateways and routing of the flow of client applications to trading platforms at all. Incoming orders are processed manually by the back offices of commercial banks participating in the system. At the same time, the cost of one operation can range from $100 to $500. And a subscription to only one Forex platform costs at least 2-3 thousand dollars per month. Naturally, in such a system, millions of applications from retail customers with a volume of several thousand dollars each will not be processed. The minimum lot here is $1 million, and the standard one is 5 million.
What is Forex, which is available to retail investors, and what is traded on it?
Retail clients will be able to trade on the real Forex market only if they have a capital of several million dollars. At the same time, they will work without leverage through the bank in which they have an account.
What is Forex, which is available to retail investors, and what is traded on it? Forex, where individuals with small capital are offered to trade, is a market where transactions for the actual purchase and sale of foreign currency are not concluded. The investor here only tracks exchange rates and, usually, makes bets on their growth or fall. The intermediary here is the dealer company (always a legal entity), which enters into transactions with all participants (buyers and sellers).