Interbank Forex and Free Markets

Forex is one of the only free markets today where the classic principles of supply and demand are paramount. The interbank forex markets enjoyed by investors today were launched in the 1970's with the introduction of free exchange rates. While there are many other factors that can affect the value of a given currency the driving force of forex remains supply and demand.

The interbank Forex market allows for the participation of many institutions and individuals. The participants in the forex market are as follows,

* Central Banks
* Commercial Banks
* Investment Funds
* Brokers
* Exchange Markets
* Firms related to foreign trade
* Private Individuals

Although most forex transactions are done by interbank forex, one can easily see that the forex markets are not limited to large international banks.

Central banks control national currencies and regulate interest rates. Perhaps the biggest and best example of a central bank is the US Federal Reserve Bank.

Commercial banks conduct the largest number of transactions in interbank forex markets. These banks may operate independently using their own assets or act on behalf of clients and brokers. Chase Manhattan Bank, Deutsche Bank, Union Bank of Switzerland, and others are examples of commercial banks.

Investment Funds include insurance companies, pension funds, and mutual funds.

Brokers are in the business of bringing buyers and sellers together and charge a commission.

Exchange Markets. Unlike the stock markets Exchange Markets have no central location and no set business hours. Most transactions are done via telecommunications giving investors access to markets 24 hours a day. The biggest Exchange Markets are located in New York, London, and Tokyo.

Firms that conduct foreign trade usually access the forex markets through commercial banks. These are firms engaged in foreign trade that require a stable supply and demand for foreign currencies.

Private Individuals are relatively new to foreign currency exchange markets and usually trade through brokers.

All these groups combined make the forex market one of, if not the largest, market with daily transactions of between 1.5-2 trillion daily. Although the large banking institutions by and large control the exchange rates it is now possible for the small investor to participate in this dynamic market. Forex markets are open 24 hours a day 6 days a week and transaction can be made anywhere since the market has no central location. For those interested in potentially astounding gains it would be wise to investigate the forex markets.