The global financial market has numerous participants, each aiming to profit, but only a select group consistently executes multi-million-dollar transactions every day. These leading financial institutions play a pivotal role. Let's spotlight them in this article
Central banks
The primary responsibility of central banks is to regulate their national currencies in the global market. Their role involves monitoring exchange rates and ensuring there are no abrupt or unjustified fluctuations. In additon, they are tasked with preventing negative economic phenomena such as financial crises, while maintaining a balance between exports and imports on a global scale. Decisions and statements made by central bank officials have a direct impact on the financial markets. In the United States, the main financial regulator is the Federal Reserve (Fed). In Europe and the UK, these are the European Central Bank (ECB) and the Bank of England respectively.
Commercial banks
Major financial institutions, including large commercial banks, execute a significant volume of currency transactions. Other market participants use these banks for various exchange, deposit, and lending operations. The currency market is heavily influenced by leading international banks, with daily transaction volumes reaching billions of dollars. Notable players include Deutsche Bank, Barclays, Union Bank of Switzerland (UBS), Citibank, Chase Manhattan Bank, Standard Chartered, and others.
Companies engaged in foreign trade and overseas investments
This group includes investment funds, monetary funds, and international corporations such as Nestle, General Electric (GE), Xerox, and British Petroleum (BP). These organizations are involved in global financial trading, and they can be classified into importers and exporters. Importers create a steady demand for foreign currency, while exporters sell foreign currency earned abroad. Exporters also deploy or attract excess funds through short-term deposits.
Currency exchanges
Currency exchanges operate around the world, particularly in developed countries such as the US, UK, Australia, and Japan. Their key function is to facilitate currency exchange for organizations and to set the exchange rates for various currency pairs. Once a quote is established on the exchange, it is sent to liquidity providers, who in turn distribute it to brokerage firms. These firms then update their platforms, making the new quotes available to traders connected to the market through brokers.
Brokerage firms
Brokerage firms act as intermediaries between currency exchanges and market participants. Their role is to facilitate the connection between buyers and sellers of foreign currency and to ensure that transactions occur at the prevailing market price. All trades are executed online through specialized trading platforms. Among the most popular platforms for retail investors are MetaTrader 4 and MetaTrader 5. For their services, brokers charge a commission known as the spread, which is the difference between the ask and bid price of a currency.