Who Trades On The Foreign Exchange Sydney Market?
There are various types of investment and trading markets, the most popular being the stock and foreign exchange markets. However, unlike the stock market, the forex market has changed incredibly over recent years. Instead of focusing primarily on the larger corporations and bigger financial institutions, the foreign exchange markets have opened their doors to individual investors. By doing so they are allowing these individuals to partake in the opportunities of the trading market.
Central banks and governments as players on the foreign exchange Sydney market
When looking at the financial market one will notice that federal governments and central banks are the foremost players. In the majority of major global countries, the central banks are seen as a mere extension of these governments with their policies being based on the federal law. However, there are governments which feel a separation of a bank from the government more advantageous as it providers a decreased level of interest rates which is seen to curb any potential inflation. It should be noted that the independence of any central banks is irrelevant as the majority of decisions regarding all monetary policies are usually discussed within the federal government’s forums.
The central bank is involved in maintaining the country’s foreign reserve which ensures the government meets its economic goals. It is the foreign exchange market which is utilised to preserve these reserve levels and thus allows the central banks to have a greater impact on any movements within the foreign exchange Sydney market.
Financial institutions as players on the foreign exchange Sydney market
It is not only central banks which affect the financial market, but local banks as well. The majority of individuals deal with their local bank foreign currency exchange. Banks carry out two forms of transactions, individual and interbank, and the level of individual transaction within local banks often outshines any interbank transactions made on brokerage systems. This may be due to the fact that brokering interbank transactions require credit whereas individual transactions do not.
It has been seen that larger banking institutions usually have better and greater credit relationships which allow them more competitive forex prices. Whereas, the smaller banks support fewer interbank credit facilities meaning they cannot offer the competitive prices of these larger financial institutions.
Overall, it can be seen that these banks will generally act as brokers when purchasing and selling foreign currency on the foreign exchange Sydney market. By doing this they will make money from an amount they add to the price they paid for the currency exchanged. It is due to this behaviour that the exchange rates for particular currencies may vary between different banks.
Large corporations as players on the foreign exchange Sydney market
Larger banks will usually deal with the international corporations irrespective of whether these companies wish to purchase or sell to international clients. The fact is this trade will require foreign currency and the use of the forex market. These corporations will use either a forwards or futures contract when trading which ensures they obtain the currency at a price meeting their budget.