What determines the exchange rate mostly, the commercial traders or SUPER banks

in school of pipsology it stands “Since the forex spot market is decentralized, it is the largest banks in the world that determine the exchange rates.”

then further down it stands " SPECULATORS: Comprising close to 90% of all trading volume, speculators as forex market players come in all shapes and sizes. Some have fat pockets, some roll thin, but all of them engage in the forex simply to make bucket loads of cash."

so how can these speculators have 90% of all trading volume, but still the largest banks determine the exchange rates.

isn’t it about supply/demand.

if 90% of the volume is in the hands of speculators and not super banks. Then how are these super banks controlling the exchange rate with their low volume?

The banks are the ones who are speculating. The thing is, they have information we don’t have, so their speculations are usually right whereas forum posters are usually wrong.

A common scam banks use is “front running”. Let’s say Toyota is planning on building a new plant in the US. They would go to their bank and ask for a loan. While the bank is arranging finance, the bank goes to the forex market and buys USDJPY. So USDJPY picks up. Once Toyota has the loan, Toyota then goes to the forex market and buys USDJPY. So USDJPY picks up again. Now the bank sells USDJPY and they make a profit.

These speculative trades far outnumber trade in good and services and foreign direct investment. It’s profitable for the banks, but very difficult for us to do.

speculators 90% of forex trading?

wow.

very incorrect statement.

id be surprized if they are accountable for 0.01% of all forex transactions.

it stands so i the school of pipsology “forex market players”

doesmt change the fact thats its simply wrong.
internet having false information is a very common phenomenom.

reputable resources that are checked by an academic background are still the best sources. internet never could and never will compete with that.

Absolutely, trade4cash, this is the point I was making to your previous question in another thread. Listening to experienced peers will always over rule non academic education provided online.

Hi BillGatesJr,

I am trying to understand the “micros” of your example:

A common scam banks use is “front running”. Let’s say Toyota is planning on building a new plant in the US. They would go to their bank and ask for a loan. While the bank is arranging finance, the bank goes to the forex market and buys USDJPY. So USDJPY picks up.

OK I can understand that.

Once Toyota has the loan, Toyota then goes to the forex market and buys USDJPY. So USDJPY picks up again.

This is when I get confused. Toyota got the loan i.e. it got USD so why would Toyota go to buy USD again.

Now the bank sells USDJPY and they make a profit.

OK I understand this.

Regards

The description in the example given is not quite accurate, nor is it really credible in foreign exchange markets. Front running is generally associated with the stock market where it is possible that one major purchase (or sale) can affect the price of a particular security because the size of the market for that security is relatively small. It is hardly likely that one customer order in one currency pair would move the price for the entire global market in that pair, except in extremely exceptional circumstances.

Front running is an unethical, perhaps in some areas even illegal, practice whereby a bank (or other party) is aware of a large order that is coming to the market which is big enough to affect the price and, based on that information, will buy/sell a position for itself ahead of the trade and sell/buy it again once the order has been processed and the market movement has materialised - kind of piggybacking someone else’s ride!

This kind of activity could not really happen in foreign exchange because of the size and liquidity. Banks could not openly and on any scale practice such behaviour such that it would move the entire market for a currency pair.

Also, even if a company like Toyota in this example were to arrange an enormously huge loan for a new plant, the loan would no doubt be shared amongst a number of different banks and, in any case, the loan would not be drawn down all in one go. The terms of the loan would be agreed and would include a timetable of the actual cash drawdowns as and when the project progresses and reaches various stages.

There may well be various forex rate agreements for forthcoming drawdowns within the terms of the loan based on forward deals or interest rate swaps, but these are not capable of influencing the entire forex market.

Further, companies like Toyota are totally aware of what the market rates are and what practices there are in the banking world and no doubt even have their own dealing desk/staff to handle the volumes of currency exposures that arise from such a multinational business activity.

Even if there [I]are [/I]some disreputable financial institutions involved in front running their clients’ positions it is certainly not them that are driving the movements in global foreign exchange…