LIQUIDITY AND MARKET CAPITALIZATION

Foreign exchange market is a unique market because:

• the volume of trade
• a very large market liquidity
• the number and variety of traders in the foreign exchange market
• geographic distribution
• trade durations are 24 hours a day (except weekends)
• a variety of factors that affect currency exchange rates

According to BIS, the average foreign exchange market turnover per day of the world's estimated worth $ 3.21 trillion, which consists of:

• $ 1,005 billion in spot transactions
• $ 362 billion in market and transfer contract (forward contract)
• $ 1,714 billion in swap market
• $ 129 billion estimated as the difference in reporting

As an extra rotation of the "traditional" is, amounted to $ 2.1 trillion traded in the derivatives market.

Foreign exchange forward contracts which were introduced in 1972 at the Chicago Mercantile Exchange grew rapidly in recent years but the volume is still only amounted to 7% of the total trade volume of foreign exchange market.

According to data from International Financial Services London (IFSL), the overall daily turnover of traditional foreign exchange market average to a total value of U.S. dollar 2.7 billiun in April 2006. Such estimates are based on mid-year data from the Foreign Exchange Committee (Foreign Exchange Committee) in London, New York, Tokyo and Singapore

On direct foreign exchange trading (OTC, brokers and traders to negotiate directly without going through the stock exchange or clearing. Geographically the largest trading center in London, England, where according to data IFSL estimated to have increased its contribution from 31.3% in April 2004 became 32.4% in April 2006

Characteristics of foreign exchange trading
There is no uniformity in the foreign exchange market. With the existence of transactions outside the stock exchange trading (over the counter) as the traditional market of foreign exchange trading, foreign exchange market very much interrelated with each other, where different currencies are traded, so that indirectly means that "no single exchange rate currency dollars but the exchange rates vary depending on what bank or market maker is trading. However, in practice the difference is often very thin.

The main trading centers are in London, New York, Tokyo and Singapore, but banks around the world to its participants. Foreign exchange trading happens all day long. If the Asian markets ended the European market was opened and at the European markets ended the American market began and returned to Asian markets, except on weekends.

Very little or even no "insider trading" or information "inside" (insider trading) that occurred in the foreign exchange market. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of monetary flows caused by changes in the growth of Gross Domestic Product (GDP), inflation, interest rates, budget and trade deficits or surpluses, mergers and acquisitions and other macroeconomic conditions. Major news is released publicly, so that more people can access the news at the same time. But the big banks have a more important value is that they can see the flow of movement "order" currency from customers.

The currency traded with each other and every currency pair is a separate product such as EUR / USD, USD / JPY, GBP / USD and others. Factor in one currency such as USD will affect the market price at USD / JPY and GBP / USD, this is a correlation between the USD / JPY and GBP / USD.

On the spot market, according to research conducted by the Bank for International Settlements (BIS), the most heavily traded products are

• EUR / USD - 28%
• USD / JPY - 18%
• GBP / USD (Also Called sterling or cable) - 14%

and currency to U.S. dollars was involved in 89% of transactions conducted, followed by the Euro currency (37%), yen (20%) and Pound Sterling (17%).

Although trading in the euro has grown considerably since the currency's creation in January 1999 1999, U.S. dollar still dominates the foreign exchange market. For example in trade between Euro and non-European currencies (XXX), usually always involves two types of trade that is EUR / USD and USD / XXX, exceptions to the trade only the EUR / JPY which is the currency pairs that regularly traded in the spot market between banks.

Process transactions
In exchange forex (foreign exchange), this person can buy or sell currencies traded. Objectively is to gain profit or advantage of position you are doing transactions. In Stock Lot forex technical term and Pip. 1 Lot value is $ 1,000 and a pip value is $ 10. While the value of the dollar in the foreign exchange market is different from that we know the dollar value of the banks. Value of the dollar in the forex market is very varied, 6000/8000 and 10,000 rupiah.

Two-way transactions
Transactions in foreign currencies can be done by two-way in taking advantage. Someone can buy a first (open-buy), then closed with a sell (sell) or otherwise, to sell first and then covered with a purchase.

Foreign exchange market players
Unlike the stock exchanges where the members have equal access to stock prices, foreign exchange market is divided on several levels of access.

At the highest level of access is the interbank money market (interbank money market), which consists of investment banking firms besar.Pada interbank money market, the difference between the offering price / selling price (ask) and price request / purchase price (bid) is usually very thin, very even does not exist, and these prices only apply to their own ranks that are not known to the foreign players outside their group.

At the access level below, the range difference between the selling and buying price to be large depending on the volume of transactions.

If a trader can guarantee the implementation of foreign exchange transactions in large numbers so they can request that the excess value of the sale and purchase reduced-called better spreads (the difference between the selling price and thinner buy).

Level access to foreign exchange markets is largely determined by the size of currency transactions to be performed.

Banks are ranked on mastering "the interbank money market (interbank money market) until 53% of the total transaction value. And after the ratings of banks are the next rank is a small investment banks and multinational companies large (which requires hedge the risk of the transaction and pays its employees in different countries), large hedge funds and retail traders who become determinants of foreign exchange market.
According to Galati and Melvin, pension funds, insurance companies, mutual funds and institutional investors is a player who has a major role in the financial markets in general and particularly the foreign exchange market since the decade of 2000s.

Bank
Interbank money market (interbank money market) to meet the needs of the majority of the velocity of money in the corporate world and the needs of transaction speculators every day that could reach the value of trillions of dollars. Some transactions were executed for and on behalf of its clients, but most are for the interests of bank owners or to the interests of the bank itself.

Until recently, foreign exchange brokers are the principal exchange turnover in large quantities, facilitating interbank money market trading and bring together sellers and buyers to "wages" (fee) is small. But nowadays a lot of the foreign exchange business which is transferred to a more efficient electronic systems such as EBS (now owned by ICAP), Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and Tradebook (R)

World business
One role of this foreign exchange market is the needs of the company's activities in paying the price of goods or services denominated in foreign currencies. Foreign currency needs of an enterprise is often only a little value compared with the needs of banks and speculators and foreign exchange trading is done is often only a very small impact on the value of the currency exchange market. Nevertheless foreign trade flows of these companies in the long term is an important factor for the direction of a currency exchange rate. Transaction several multinational companies can bring unexpected consequences when they close a position (the position of selling or buying) a very large one which transaction is not widely known by market players.

Central bank
A country's central bank holds a very important role in the foreign exchange market. The central bank is always trying to control money supply, inflation, and interest or sometimes even they have a target both official and unofficial exchange rates against his country. Often the central bank uses foreign currency reserves to stabilize the market.

With market expectations or the issue of intervention by the central bank has enough merely to stabilize the local currency, but aggressive intervention carried out several times in each year at a country currency exchange rates fluctuate.

Various funding sources exist in the foreign exchange market when combined can easily "played" the central bank (withdraw or sell currencies in huge amounts of time so that the central bank can no longer perform the intervention) in which this scenario appears in the year 1992-1993 which European exchange rate mechanism (European Exchange Rate Mechanism - ERM) experienced a fall and several times a fall of currency values in Southeast Asia.
Investment management firm
Investment management companies (which usually is a lot of account managers on behalf of clients such as pension funds and foundations donated funds) that transact in foreign exchange markets for foreign currency needs in order to conduct transactions in foreign purchases of shares. Foreign exchange transactions for them is not a primary investment objective so that the transaction does not by speculative purposes or with the aim of profit maximization.

Hedge funds
Hedge funds (an investment holding company which operates speculative transactions for profit) such as George Soros whose reputation rose due to the activities of currency speculation was doing aggressively since 1990. He manages the fund trillions of U.S. dollars and still be able to borrow more trillions of U.S. dollars and therefore are able to make interventions that are performed by the central bank of a country to maintain its currency exchange rate to be helpless if the economic fundamentals depends on the "mercy" hedge funds.

Foreign exchange brokers
Foreign exchange broker is a company established specifically to conduct brokerage services for customers with interests in the field of financial markets to obtain compensation for their services. According to CNN, a foreign exchange broker has a transaction volume of between 25 to 50 trillion U.S. dollars per day or about 2% of the total value of the foreign exchange market transactions as reported by the site and Futures Trading Commission (the Commodity Futures Trading Commission - CFTC) that novice investors easily may become targets of fraud in the foreign exchange trading.