Foreign exchange wholesale market

Foreign exchange wholesale market

Foreign exchange wholesale market refers to the foreign exchange trading activities and places between banks. Foreign exchange wholesale market is also known as the narrow foreign exchange market. Generally speaking, the foreign exchange market refers to the narrow foreign exchange market.

Foreign exchange transactions between foreign exchange banks and their customers will inevitably lead to the imbalance of foreign exchange position and cash flow term. When the purchase of a foreign currency is greater than the sales, there will be a "long position". When the sales of a foreign currency are greater than the purchase, there will be a "short position". In order to avoid the risk caused by exchange rate fluctuations, banks need to borrow Assist the inter-bank foreign exchange transactions to allocate foreign exchange positions, flatten the positions of various currencies, that is, to sell long positions and buy short positions.

Since the implementation of the floating exchange rate system, the market exchange rate fluctuates greatly, and there are many opportunities for speculative foreign exchange trading to gain profits. Banks carry out arbitrage, arbitrage and hedging for speculative purposes. For the purpose of macro-control, the central bank conducts open business operations in the foreign exchange wholesale market.

Its main characteristic is the large scale of transaction. The wholesale foreign exchange market mainly adopts integer wholesale trading, which is limited by the minimum transaction amount (for example, the minimum trading volume of Eurodollar is 1 million US dollars). The transaction volume is huge, so the transaction cost is low and the bid ask spread is small.

The foreign exchange wholesale market is the mainstream of the foreign exchange market, and its transactions account for more than 90% of the total foreign exchange transactions. The foreign exchange market mentioned in the news reports usually refers to the inter-bank foreign exchange market.