Foreign exchange market

Global Foreign exchange market

Forex is a global decentralised online network where traders buy and sell currencies and is the largest
and most liquid market in the world, with 170 countries around the world. It has no physical location
and operates 24 hours a day starting from 5pm EST on Sunday until 4 pm EST on Friday and sets
exchange rates for currencies with floating rates. The average trading volume of a FOREX market is
5.3 trillion US dollars per day.
Foreign exchange can be traded through –

• Electronic methods - 41.3 %

• Directly with customers - 24.3 %
• Interbank markets - 18.5 %
• Voice brokers - 15.9 %
 Top currencies of the world

RANK CURRENCIES COUNTRY TRADE VOL / DAY

1 Us dollars USA 2.2 trillion
2 Euro Europe 800 million
3 Japan yen Japan 550 M
4 Pound sterling UK 325 M
5 Australian dollars Australia 174 M
6 Canadian dollars Canada 130 M
7 Swiss frank Switzerland 122 M
8 Chinese renminbi China 101 M
9 Swedish krona Sweden 56 M
10 New Zealand dollars New Zealand 52 M
 Drivers of FOREX turnover

2. By instruments.
1. By counter party.
Global OTC foreign exchange
BIS divides them into three categories –
instruments – spot transactions,
reporting dealers, other financial institutions
outright forward transactions, FX
and non financial customers
swaps, currency swaps, options
and future contracts

reporting dealers

non financial spot transactions

38% customers
47% 33.00% outright forwards
other finnancial
currency swaps
instruments
67% options and others
FX swaps
5%
14.00%
5.00% 2.00%
This global market has two tiers.
The first is the inter bank market, where the biggest banks exchange currencies with each other. The second
tier is the OTC market. The interbank market is a wholesale market through which most of the currencies re
channelled and mainly used for trading among bankers. The three main constituents of IB markets are spot
market, forward market and SWIFT. The top 10 players in FOREX market as per Euromoney’s FX survey are –

market share( %)
State street 4.37

Standard… 4.49

Deutsche bank 5.41

Goldman sachs 5.53

HSBC 5.58

CITI 6.16

Bank of America 6.2

XTX markets 7.36

UBS 8.25

JPMC 12.13

0 2 4 6 8 10 12 14
 Reserve currency
A reserve currency is held in significant quantities by governments and institutions as a part of their
foreign exchange reserves. The IMF publishes currency composition of foreign exchange reserves
( COEFR) every year. The global Forex reserve for the third quarter of 2018 is11396.62 trillions in
US dollars

List of top 10 countries by forex reserve($)

2.02 0.18 1.23 2.532 China 3053100

1.8 us dollars
4.5 Japan 1252870
4.9 euro Switzerland 800389
Saudi 506400
japan yen
20 Russia 466900
63 pound sterling Taiwan 461784
Hong kong 423100
aus dollars
South korea 403700
india 397352
brazil 380290
 Some stats..

• The trading volume of the FOREX market is 4 times the global GDP, 12 times the future market
and 27 times the equity market.
• More than 85% of global FOREX transactions happens on 7 pairs known as the majors –
EUR/USD, USD/JPY, GBP/USD,AUD/USD,NZD/USD,USD/CAD,USD/CHF.

• Deutsche bank is the world largest FOREX dealer with 21% market share.
• North Korea is the largest counterfeiter of the US dollar currency
• It would take 126118 years to spend the daily trade volume of forex market, if a dollar is spent per
second
• The US dollar is the most traded currency, being a part of 80% of global trades and it is the world
reserve currency
• 60% of transactions are conducted either in UK (41%) or US(19%). The LSE is the trading hub
fore FOREX deals, followed by NSE and SGX (Singapore).