Forex Group

The FX Market

Everyday, the value of money traded on the foreign exchange markets around the world is close to three trillion United States dollars. Of that, just over USD$100 Bln is traded within Australia on an average day, of which about 50% involves the Australian Dollar. The balance is made from global players trading currencies for hedge funds and the like, during the Australian time zone.

With so much currency exchange occuring everyday, its no suprise that the currency market is the most liquid and volatile of all financial markets. What's more, it only stops for a short time each week, between New York closing on Friday afternoon (our Saturday morning) and Auckland opening in the early hours of Monday morning.

The Market Players

At the top of the market, banks around the world are buying and selling currency from each other via electronic trading systems. This is the ultimate place to be buying and selling currency but unless you are throwing around billions of dollars everyday, you are unlikely to get invited to this table.

Beneath the banks, there are a number of market makers that have the ability to pool enough funds together to gain the interest of the banks above. These companies are generally looking after hedge funds that have no interest in the physical currency, but buy and sell to make a profit. There is more of this action happening everyday than foreign exchange transactions that are supported by an import or export. These market makers are able to get access to rates just a point or two off the interbank trading rates.

The next level of Market Participant is generally the corporates. They too are throwing around large sums of money but are required to buy and sell their currency from a bank or market maker. Even though they are transacting millions of dollars at a time, they still lose points on the rates compared to the level above. At this level, what is commonly know as the "spread" or the difference between the buy and the sell rates becomes significant. The AUDUSD for example, will typically be shown with a 5 points spread. ie: 0.7511 / 0.7516. The former being the buy rate and the latter the sell rate.

From this level, we are generally refering to the retail market. Here the spreads start to stretch but the volumes tend to shrink. Whereas the level above might be trading in millions of dollars, this level is in the millions but may be as low as the hundreds of thousands. Small to medium sized importers and exporters normally fit into this level and are generally buying their currency from a banks treasury or financial market department. Some individuals will also fall into this category.

From here, spreads can vary dramatically. Given the rates used above, a buy rate at this level may be as much as 300 points lower than the actual market rates. That is, an AUDUSD interbank rate of 0.7511 may be listed at a "Bureau D'change" (or similar) for 0.7211. Given that the market is moving with split second precision, providers of foreign exchange at this level require larger spreads to enable them to transact in amounts as small as $10.

Where we fit in

Forex Group has the same access to the Foreign Exchange market place as the corporates. From this platform, we are able to provide our clients with exceptional exchange rates and major savings on any foreign exchange purchase above $10,000.