How exactly does Foreign Exchange work at Banks? | Forex Factory

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How exactly does Foreign Exchange work at Banks?

  • #1
  • First Post: Edited Nov 18, 2012 7:36pm Nov 17, 2012 7:04am | Edited Nov 18, 2012 7:36pm
hi guys is anyone here work at banks can explain detailed on how is foreign exchange from average joe is handled ? or anyone has information of it ?

wiki said average daily turnover in global foreign exchange markets is estimated at $3.98 trillion

lets say i'm a trillionaire and i have 8 trillion USD and i want to change it to EUR , i went to citibank and said to the teller i want to change 8 trillion of my USD into EUR . How is my money process ? will i crash the foreign exchange market with sudden move ? im really curious on how is my money handled

thanks please reply
  • #2
  • Nov 17, 2012 8:08am Nov 17, 2012 8:08am
Quoting askingkalz

lets say i'm a billionaire and i have 2 trillion USD ....
1000 billion = 1 trillion
  • #3
  • Nov 17, 2012 8:11am Nov 17, 2012 8:11am
Quoting Coolleen
1000 billion = 1 trillion
you know what i meant , edited it anyway
  • #4
  • Nov 17, 2012 8:34am Nov 17, 2012 8:34am
Quoting askingkalz
you know what i mean , edited it anyway
well for average joe, there is a rule in place according to which you need to inform the bank a few days/weeks earlier that you want to do a large transaction on x date.once informed the bank will arrange the amount for you from different sources.
  • #5
  • Nov 17, 2012 8:36am Nov 17, 2012 8:36am
Quoting askingkalz
hi guys is anyone here work at banks can explain detailed on how is foreign exchange from average joe is handled ? or anyone has information of it ?

wiki said average daily turnover in global foreign exchange markets is estimated at $3.98 trillion

lets say i'm a trillionaire and i have 8 trillion USD and i want to change it to EUR , i went to citibank and said to the teller i want to change 8 trillion of my USD into EUR . How is my money process ? will i crash the foreign exchange market with...
That 4 trillion figure always make me laugh..
the actual liquidity in spot forex (what's available for trading) is much, much, much less than 4 trillion. It is so ridiculously small I always get funny goose bumps when I say it.
How about say no more than the liquidity in the wheat futures market?
Not much heh ):
How about that for a reality check (:
  • #6
  • Nov 17, 2012 9:51am Nov 17, 2012 9:51am
The $3.98 trillion break-down is as follows:

$1.490 trillion in spot transactions
$475 billion in outright forwards
$1.765 trillion in foreign exchange swaps
$43 billion currency swaps
$207 billion in options and other products

Not that small
  • #7
  • Nov 17, 2012 10:37am Nov 17, 2012 10:37am
Quoting Coolleen
well for average joe, there is a rule in place according to which you need to inform the bank a few days/weeks earlier that you want to do a large transaction on x date.once informed the bank will arrange the amount for you from different sources.
so on x date my money will crash the forex market with sudden move ? we can see it on our chart ?

Quoting Mingary
That 4 trillion figure always make me laugh..
the actual liquidity in spot forex (what's available for trading) is much, much, much less than 4 trillion. It is so ridiculously small I always get funny goose bumps when I say it.
How about say no more than the liquidity in the wheat futures market?
Not much heh ):
How about that for a reality check (:
actually logically people exchange money more often than someone involve in the wheat industry

Quoting ALThau
The $3.98 trillion break-down is as follows:

$1.490 trillion in spot transactions
$475 billion in outright forwards
$1.765 trillion in foreign exchange swaps
$43 billion currency swaps
$207 billion in options and other products

Not that small
  • #8
  • Edited 1:00pm Nov 17, 2012 12:10pm | Edited 1:00pm
Quoting askingkalz
so on x date my money will crash the forex market with sudden move ? we can see it on our chart ?
the move is not sudden as you already informed the bank in advance that you need euros.the bank will start buying euros (gradually) everyday from other banks.if the demand temporarily exceeds supply you'll end up paying more $ for each euro.(bad for you) the ecb will then print more euros /cut rates etc to bring the euro down back to the normal level (bad for you gain) in the end you'll loose a few billion $.A crash is impossible imo
  • #9
  • Nov 17, 2012 1:13pm Nov 17, 2012 1:13pm
Quoting Coolleen
the move is not sudden as you already informed the bank in advance that you need euros.the bank will start buying euros (gradually) everyday from other banks.if the demand temporarily exceeds supply you'll end up paying more $ for each euro.(bad for you) the ecb will then print more euros /cut rates etc to bring the euro down back to the normal level (bad for you gain) in the end you'll loose a few billion $.A crash is impossible imo

so the move is not sudden but over days ? so that means even though i bought it on x date the agreed rate is not on x date but rates over days ?
  • #10
  • Nov 17, 2012 1:28pm Nov 17, 2012 1:28pm
Quoting ALThau
The $3.98 trillion break-down is as follows:

$1.490 trillion in spot transactions
$475 billion in outright forwards
$1.765 trillion in foreign exchange swaps
$43 billion currency swaps
$207 billion in options and other products

Not that small

And then retail traders, not just retail, take up about 2% of this. You have to take into account the retail broker, which facilitates the retail traders trade.

If you had 8 trillion dollars, you'd be beyond the richest man in history, or trillionaires, quadrillionaires, quintrillionaires would probably exist. (But yes, if you were to suddenly dump 8 tril into the markets today, shit would get fucked up. Though, I doubt any broker would allow that, since they would be one of the top banks in the world.)
Play the players, not the cards.
  • #11
  • Nov 17, 2012 1:55pm Nov 17, 2012 1:55pm
Quoting GnarlyPips
And then retail traders, not just retail, take up about 2% of this. You have to take into account the retail broker, which facilitates the retail traders trade.

If you had 8 trillion dollars, you'd be beyond the richest man in history, or trillionaires, quadrillionaires, quintrillionaires would probably exist. (But yes, if you were to suddenly dump 8 tril into the markets today, shit would get fucked up. Though, I doubt any broker would allow that, since they would be one of the top banks in the world.)
aren't broker included on spot transactions ?

in this case i don't know any forex broker trading , i wanna know how the system work , say i have those 8 trilllion from business and i want to change from USD to EUR on citibank .... i wanna know how my 8 trillion affect foreign exchange market ...
  • #12
  • Nov 17, 2012 2:05pm Nov 17, 2012 2:05pm
Quoting askingkalz
so the move is not sudden but over days ? so that means even though i bought it on x date the agreed rate is not on x date but rates over days ?
the "agreed" rate could be higher or lower than the spot rate.if you sign a Forward contract with a bank to buy x amount of euro at a certain agreed rate,on some future date then you are obligated to buy at that price.
  • #13
  • Nov 17, 2012 9:14pm Nov 17, 2012 9:14pm
This thread is annoying on many different levels

Not sure where to start really.
Time hides Nothing
  • #14
  • Nov 18, 2012 12:06am Nov 18, 2012 12:06am
Quoting Coolleen
the "agreed" rate could be higher or lower than the spot rate.if you sign a Forward contract with a bank to buy x amount of euro at a certain agreed rate,on some future date then you are obligated to buy at that price.
thanks for the information , now i know a little on how the bank system work

Quoting CindyXXXX
This thread is annoying on many different levels

Not sure where to start really.

what do you mean by annoying ? this is a trading discussion forum right ?
  • #15
  • Nov 18, 2012 2:51am Nov 18, 2012 2:51am
Quoting ALThau
The $3.98 trillion break-down is as follows:

$1.490 trillion in spot transactions
$475 billion in outright forwards
$1.765 trillion in foreign exchange swaps
$43 billion currency swaps
$207 billion in options and other products

Not that small
maybe you should take some guesstimates at how that all breaks-down when you split it across currencies, and then split those individual currency amounts into minute by minute segments, and then also consider that trades go both ways... so halve the figure again. oh, and then consider that this volume doesn't equate directly to profit / loss figures (1 lot traded does not equal 1 lot of profit/loss).

yeah. not really that much. 10,000 millimetres is still only 10 metres. it's just a big-sounding number from one specific perspective, just as these trillion figures are meant to impress people when in reality it breaks-down into much less impressive figures moment to moment.

i can stick my hand on the outlet of a spa-bath jet for a day and have thousands upon thousands of litres of water pass through my fingers... does this mean the spa-bath contains thousands upon thousands of liters of water within it? of course not.

people need to think a bit harder about things.
Congratulations ScalaFX for coming out of the closet!
  • #16
  • Nov 18, 2012 3:10am Nov 18, 2012 3:10am
Quoting askingkalz
thanks for the information , now i know a little on how the bank system work




what do you mean by annoying ? this is a trading discussion forum right ?
Yep... Annoying as fuck

the thing about the spa mainly... really can't be bothered.
Time hides Nothing
  • #17
  • Nov 18, 2012 6:44am Nov 18, 2012 6:44am
Quoting ALThau
The $3.98 trillion break-down is as follows:

$1.490 trillion in spot transactions
$475 billion in outright forwards
$1.765 trillion in foreign exchange swaps
$43 billion currency swaps
$207 billion in options and other products

Not that small
not entirely accurate but just to give you an idea.

http://www.forexstreet.net/photo/liquidity-in-fx

divide that 4,340,275 into 20-30 most commonly available pairs across all the trading platforms and it gets really scary.
.
  • #18
  • Nov 18, 2012 7:58am Nov 18, 2012 7:58am
http://www.forexstreet.net/photo/liquidity-in-fx

Yes, really peanuts is right.
All a marketing ploy to lure the gullible and the greedy into opening an account and losing it all to the Market Maker
  • #19
  • Nov 18, 2012 11:49am Nov 18, 2012 11:49am
Quoting askingkalz
aren't broker included on spot transactions ?

in this case i don't know any forex broker trading , i wanna know how the system work , say i have those 8 trilllion from business and i want to change from USD to EUR on citibank .... i wanna know how my 8 trillion affect foreign exchange market ...
The full answer isn't short enough for a thread here, but you can get an idea from the attached document.
Attached File(s)
File Type: pdf FXMicrostructure-Survey_07-15-08.pdf   662 KB | 733 downloads
  • #20
  • Nov 18, 2012 11:53am Nov 18, 2012 11:53am
Quoting Mingary
That 4 trillion figure always make me laugh..
the actual liquidity in spot forex (what's available for trading) is much, much, much less than 4 trillion. It is so ridiculously small I always get funny goose bumps when I say it.
How about say no more than the liquidity in the wheat futures market?
Not much heh ):
How about that for a reality check (:
Hmm...Measuring wheat futures liquidity seems doable as they are exchange traded, but how would you define and measure fx market liquidity?
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