trading currencies for large banks

[halfstep]

Do all large institutional banks trade currencies?

If they do, I would assume all banks have a special division of forex traders?

[rhodytrader]

"All" is probably a bit strong, but you can be pretty sure that financial institutions which provide banking services to large companies will have some kind of forex functionality, and yes, that is likely to mean a group of forex specialists.

[Clint]

Here's where 80% of worldwide forex volume is transacted:

Source: Euromoney FX survey FX Poll 2009:
The Euromoney FX survey is the largest global poll
of foreign exchange service providers.


The rest of the 90 (or so) banks in the worldwide "interbank" network divide the remaining 20% of volume among themselves.

[wrtm_19]

Correct me if I'm wrong but as far I as know banks trade forex mainly for hedging purposes, not for speculation.

But that's something that has intrigued me for a long time for sure.

[rhodytrader]

Correct me if I'm wrong but as far I as know banks trade forex mainly for hedging purposes, not for speculation.

But that's something that has intrigued me for a long time for sure.

Some banks do have prop desks which speculate. In most cases, though, the majority of volume they do is transacting customer business like swaps, forwards, etc.

[pippy longstocking]

This begs the question for me. If 60% of the trading is done by banks, and banks are not doing it for purposes of speculation, what is moving the currencies minute by minute? For example, in one hour, the GBP/JPY can move 80 pips. Who, or what, is doing that? Another question: how many traders would you guess are watching that chart that closely, worldwide at any given minute?

[Clint]

This begs the question for me. If 60% of the trading is done by banks, and banks are not doing it for purposes of speculation, what is moving the currencies minute by minute?

pippy,

I think there is some confusion here. We aren't talking about trading done by banks; we are talking about trading done through banks. Essentially, 100% of all foreign exchange trading is done through banks.

The big banks which comprise the interbank network are, first and foremost, intermediaries. Virtually 100% of the forex business passing through these banks represents the transactions of someone other than the banks themselves. Only a tiny percentage of the forex transactions handled by banks represents their own trading.

Commercial transactions represent the largest part of daily forex volume handled by banks. An example of a commercial transaction is: Toyota converting euro (from sales of their cars in Europe) into yen to be deposited into corporate bank accounts in Japan.

Speculative transactions constitute a smaller portion of total forex volume. Such transactions include trades made by little people like you and me; and trades made by heavy-hitters like George Soros (through his Quantum Fund), and John Taylor (through FX Concepts). Speculative trades made by the banks themselves are a tiny portion of this category.

All of these transactions are "cleared", if you will, through banks. The 10 banks most active in foreign exchange "clear" 80% of those transactions --- but, except for a tiny percentage, those transactions are not the banks trading for their own accounts.

Clint