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How exactly does Foreign Exchange work at Banks?

  • #21
  • Nov 18, 2012 6:32pm Nov 18, 2012 6:32pm
Quoting nasir.khan
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.
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Quoting medici
The full answer isn't short enough for a thread here, but you can get an idea from the attached document.

thanks guys for the share
  • #22
  • Nov 18, 2012 9:51pm Nov 18, 2012 9:51pm
Quoting CindyXXXX
Yep... Annoying as fuck

the thing about the spa mainly... really can't be bothered.

Well, you can keep getting annoyed as fuck on your own initiative, or you can "enlighten" us.
Play the players, not the cards.
  • #23
  • Nov 18, 2012 10:08pm Nov 18, 2012 10:08pm
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 retail broker is included in the big picture, but retail traders, account for about 2%. This number is a little different just solely in spot transactions.

Right now, if you dropped 8 tril on the markets, I mean, the whole thing would look entirely different, because no one person has 8 tril. But, if you were to somehow drop that on the markets right now, shit would fuck up. This isn't really possible because brokers wouldn't allow you to, unless it's a cheap little bucketshop, but they'd probably be taking your money without you knowing. Also, you need to find traders who will take the other side of your 8 tril trade.

Your trade just simply wouldn't happen unless a government took the other side or something.
Play the players, not the cards.
  • #24
  • Nov 18, 2012 10:45pm Nov 18, 2012 10:45pm
The best two parts of this thread-

Quoting GnarlyPips
But yes, if you were to suddenly dump 8 tril into the markets today, shit would get fucked up.
Quoting CindyXXXX
This thread is annoying on many different levels.
(chuckle)
  • #25
  • Nov 18, 2012 11:42pm Nov 18, 2012 11:42pm
Quoting GnarlyPips
The retail broker is included in the big picture, but retail traders, account for about 2%. This number is a little different just solely in spot transactions.

Right now, if you dropped 8 tril on the markets, I mean, the whole thing would look entirely different, because no one person has 8 tril. But, if you were to somehow drop that on the markets right now, shit would fuck up. This isn't really possible because brokers wouldn't allow you to, unless it's a cheap little bucketshop, but they'd probably be taking your money without you knowing. Also,...

no you miss my point here , in this hypothetical case i don't know any online trading , i want to change my USD into EUR on pure business decision and i did it on a bank , i chose citibank here , well citibank supposedly have accept this because this is business for them . I want to know how citibank process my money and during those process how will it affect foreign exchange market . Because from we can see EUR/USD rate is the same all around the world by seconds if not by minute .
  • #26
  • Edited 1:20am Nov 19, 2012 12:53am | Edited 1:20am
Quoting askingkalz
no you miss my point here , in this hypothetical case i don't know any online trading , i want to change my USD into EUR on pure business decision and i did it on a bank , i chose citibank here , well citibank supposedly have accept this because this is business for them . I want to know how citibank process my money and during those process how will it affect foreign exchange market . Because from we can see EUR/USD rate is the same all around the world by seconds if not by minute .
forget what gnarly said as it was really quite a bad attempt at whatever it was meant to say.

you just don't understand... you can't walk into any bank anywhere and decide you want to do a currency exchange greater than the amount that is exchanged at any one point in time, unless you are willing to let an order sit there until it gets consumed over time.

you can't buy or sell what isn't for sale or in demand! you can't go into a fruit shop and say you want to buy 3 tonnes of apples when they only have one basket of 50 apples! you could, instead, buy those 50 apples and leave a pending arrangement to continually buy further apples at some price until such time as you have your 50 apples... however long that takes.

there is a point of volume / liquidity where you stop trading a market and instead you BECOME the market! you won't ever see that point, so your question really is quite hypothetical. you aren't soros.

it's a bit like if you are trading your favorite stock over and over. buying and selling. then at some point you end-up buying most of the stock that is available and have the majority of the shares... you stopped being a participant in trading that stock and BECAME that stock since you have majority shares. something like that. crappy example. edit : and this was more to the point of where you would be if you managed to do what you are asking, and that is to buy-up a majority of a currency. if you managed to buy-up most of the real-estate in, let's say, hawaii, you stop being a resident of hawaii and basically become.... hawaii.

.....

now let's hear someone else chime-in and again try and convince everyone how massive the market is.... *gun to head. pulls trigger*
Congratulations ScalaFX for coming out of the closet!
  • #27
  • Nov 19, 2012 2:29am Nov 19, 2012 2:29am
Quoting nubcake
forget what gnarly said as it was really quite a bad attempt at whatever it was meant to say.

you just don't understand... you can't walk into any bank anywhere and decide you want to do a currency exchange greater than the amount that is exchanged at any one point in time, unless you are willing to let an order sit there until it gets consumed over time.

you can't buy or sell what isn't for sale or in demand! you can't go into a fruit shop and say you want to buy 3 tonnes of apples when they only have one basket of 50 apples! you could, instead,...

Microsoft bill gates is one of the richest man on earth , microsoft has customer all around the world
on this article http://online.wsj.com/article/SB1000...968071002.html

it stated that their first quarter revenue is $16 billion which i'm sure as a result from country all around the world which is non US Dollars , so that apple case it has limitation , well since you stated that apple case , i came to notice that all commercial bank is trading with the Central bank because they're the one who has the unlimited printing ability am i right ? , so i think my 8 trillion would be accepted by citibank because they trade it again with the ECB ? if so how would my money affect the foreign exchange market ? say EUR/USD rate today 1.27612 , how much my 8 trillion money would change the rate .
  • #28
  • Nov 19, 2012 2:53am Nov 19, 2012 2:53am
Quoting askingkalz
Microsoft bill gates is one of the richest man on earth , microsoft has customer all around the world
on this article http://online.wsj.com/article/SB1000...968071002.html

it stated that their first quarter revenue is $16 billion which i'm sure as a result from country all around the world which is non US Dollars , so that apple case it has limitation , well since you stated that apple case , i came to notice that all commercial bank is trading with the Central bank because they're the one who has the unlimited...
cute story but who cares?

i'm sure macdonalds makes at least few thousand dollars every minute (or second) worldwide. so what? that doesn't mean you can go into a store and rob the cashier expecting to take a few thousand! i think you don't really understand what it is you are even trying to ask.

what does bill gates quarterly have to do with anything? who says microsoft has to do any currency exchanges, ever? i'm sure they do, but that's beside the point. his company earns money from sales, and some of that money then goes back into the business and paying for production and employees. what are you even asking here? it's like you are suggesting bill gates has a few billion in his pocket, walks into a bank and says "here, please pay my workers around the world" and they then exchange his billions and his workers are now magically paid.

it's like you are trying to ask about global economics and buying power and how this all plays into the exchange rate, but you don't have the tools to understand the scope of the question or the mechanics that go into explaining it. walk before you try to run. go learn from the ground-up (what is a buy, what is a sell, etc) before you try to wrap your head around global finances.

my tolerance has waned too far. have fun peeps.
Congratulations ScalaFX for coming out of the closet!
  • #29
  • Nov 19, 2012 4:40am Nov 19, 2012 4:40am
Quoting nubcake
cute story but who cares?

i'm sure macdonalds makes at least few thousand dollars every minute (or second) worldwide. so what? that doesn't mean you can go into a store and rob the cashier expecting to take a few thousand! i think you don't really understand what it is you are even trying to ask.

what does bill gates quarterly have to do with anything? who says microsoft has to do any currency exchanges, ever? i'm sure they do, but that's beside the point. his company earns money from sales, and some of that money then goes back into the...

what i am trying to say is microsoft is a global company as well as other big company like apple toyota etc
so their income is not from US dollar alone but from foreign currency , so over years of their business they must be converting their profit into us dollars
i want to know exactly when they did how it affect the exchange rate because rates example EUR/USD is the same all around the world

but well just forget it thanks for your contribution but i think i got the idea from coolleen it must be over days not sudden move on 1 day .

and actually if you know how the system work extremely detail you get the idea how to trade forex
  • #30
  • Nov 19, 2012 4:47am Nov 19, 2012 4:47am
double post
  • #31
  • Nov 19, 2012 5:07am Nov 19, 2012 5:07am
Quoting askingkalz
no you miss my point here , in this hypothetical case i don't know any online trading , i want to change my USD into EUR on pure business decision and i did it on a bank , i chose citibank here , well citibank supposedly have accept this because this is business for them . I want to know how citibank process my money and during those process how will it affect foreign exchange market . Because from we can see EUR/USD rate is the same all around the world by seconds if not by minute .
For how a trade like yours work out, on the 5th page there is "2.9 A foreign Exchange Trade"...read it.

http://books.google.com.pk/books?id=...page&q&f=false

as to what impact you will have on the price,

Unlike the example in the book the dealer will have to talk to his clients and contacts like banks, instos and other dealers etc to see how much Eur they will/can sell (nobody will sell more than they have to, cause when they will hear there is a 9 trillion more coming through all they wanna do would be to front run that order and buy some for themselves to profit, every one in the market will know about you order and every one will want to position themselves for that like people try for an intervention, that alone will start to drive the market up).

He will call you back and tell you that he has only manage to come up with a few billions at a price far higher than the current price of Eurusd and every time a some agrees to sell his euros to you he will ask for a price higher than 50-60 pips above the current price. Now this means that while you are converting your money every second you will drive the price up 40-50 pips every few million dollars you convert and at one time there will be no one who will want to sell his euro's to you. Unless they have to. So essentially i think market will dry out (no movement) in a few days and there wont be a single seller left in the market for Euros (across many pairs).

Ofcourse there will be people/companies who will "need" to convert to euros every month for varies business and daily life purposes and these transaction will continue to drive price higher.

On a chart it would look like the snb intervention last sept except it will last for some decades until you get your order through.

Ofcourse that example is based in a nutshell where there is only a market consisting of buyers and sellers, in the real world this would have far fetched implications on daily life like CIA coming after you, trade restrictions by central banks etc.. lol idk.

(btw don't quote me on that im just letting my imagination run here)

P.S; buy that book i linked to if are really interested in that stuff.
.
  • #32
  • Nov 19, 2012 5:50am Nov 19, 2012 5:50am
Quoting nasir.khan
For how a trade like yours work out, on the 5th page there is "2.9 A foreign Exchange Trade"...read it.

http://books.google.com.pk/books?id=...page&q&f=false

as to what impact you will have on the price,

Unlike the example in the book the dealer will have to talk to his clients and contacts like banks, instos and other dealers etc to see how much Eur they will/can sell (nobody will sell more than they have to, cause when they will hear there is a 9 trillion more coming through all they wanna...
thanks nasir.khan for the information , will read it out
  • #33
  • Edited 8:47pm Nov 19, 2012 5:49pm | Edited 8:47pm
Quoting askingkalz
what i am trying to say is microsoft is a global company as well as other big company like apple toyota etc
so their income is not from US dollar alone but from foreign currency , so over years of their business they must be converting their profit into us dollars
i want to know exactly when they did how it affect the exchange rate because rates example EUR/USD is the same all around the world

but well just forget it thanks for your contribution but i think i got the idea from coolleen it must be over days not sudden move on 1 day .

and...
Exchange rate risk is a potential stain on returns of companies so this is a factor they wouldnobviously consider well in advance of the cruel transaction. They wouldnt for example just recieve a lump sum and "cash it in" for home currency. Likely this is planned in advance through options or futures to hedge the risk and handle by skilled traders at bank who need to cover another risk more along the lines of what nubcake was saying... Liquidity risk. If you want to sell 1 trillion Euros you need to find buyers to match that transaction obviously or you will push the market rate against your own "trade".

So the very largest transactions are likely dealt withnover a period of time. Microsoft perhaps was given it's money as soon as it required it but the bank who dis the exchange would have taken on the risk mentioned above and straight away started tadingvthat risk to other banks to reduce their own. All this wheeling and dealing are foreign exchange transactions in themselves so whatever amount the bank initially took from Microsoft will be multiplied many many times as that money is spread througout the interbank sytemise between banks.... THIS is why the daily turnover of FOREX is a misleading figure. They all it the hot potato effect.

So again (another example) "customer A" give "bank A" 3 billion Euros to exchange for USD. Bank A says I do not want to be long 3 Billion Euros I it is too risky and puts my books out of balance, so calls up bank B and Bank C who take 1 billion of Euros themselves in exchange for currency they sell for it. The business is good for all banks but now bank B and C have the same problem as bank A so offload another .5 billion each to bank D etc etc.

So the initial 3 billion in volume so far has turned into (3+1+1+.5+.5) 6 Billion and on it goes until the end if the day over all banks, currencies, transactions, securities until we get the daily turnover figure of 3-4 Trillion. Did you know 1 trillion seconds goes back something like 34, 000 years? It's quite a large number yes but just a by product of the daly wheeling and dealing of the banks.

So... With that said no bank would accept 1 trillion as an exchange because it is such a large liquidity risk. It would have to be done privately through a block broker who specialises in fixing this problem and filling extremely large orders discreetly. His main problem is finding liquidity at an acceptable price. At such big stakes you can imagine the games that go on in amongst all this wheeling and dealing.

{Edit}That's a pretty rough and rushed version of what is all around the forum by other people, hence why I said it was kind of annoying. I should probably retire from the forum, no offense was intended.

Hopefully it helped. It's good to understand that large players move the market, but for large players to play they need large orders filled, so to fill large orders, liquidity is needed, to find liquidity one must find orders, to find orders one must find stops and limit orders. Which is why 90%+ in the long run must lose. It is a must.

On a side note you remember a couple of years ago the "fat fingered banker" who accidentally hit Billions instead of millions on his trade station and crashed the market? They have safety measures in place for such sudden dumps of money into the market to avoid an entire system crash and panic selling/ buying.

Wrote this on an iPhone so forgive the many typos I'm guessing are above. Difficult to type difficult to edit.
Time hides Nothing
  • #34
  • Nov 19, 2012 6:04pm Nov 19, 2012 6:04pm
Quoting CindyXXXX
Exchange rate risk is a potential stain on returns of companies so this is a factor they wouldnobviously consider well in advance of the cruel transaction. They wouldnt for example just recieve a lump sum and "cash it in" for home currency. Likely this is planned in advance through options or futures to hedge the risk and handle by skilled traders at bank who need to cover another risk more along the lines of what nubcake was saying... Liquidity risk. If you want to sell 1 trillion Euros you need to find buyers to match that transaction obviously...
Your account was hacked yesterday?
lol
.
  • #35
  • Nov 19, 2012 7:17pm Nov 19, 2012 7:17pm
Quoting CindyXXXX
Exchange rate risk is a potential stain on returns of companies so this is a factor they wouldnobviously consider well in advance of the cruel transaction. They wouldnt for example just recieve a lump sum and "cash it in" for home currency. Likely this is planned in advance through options or futures to hedge the risk and handle by skilled traders at bank who need to cover another risk more along the lines of what nubcake was saying... Liquidity risk. If you want to sell 1 trillion Euros you need to find buyers to match that transaction obviously...
thanks for your information it gave me a better understanding on how the bank system works

Quoting CindyXXXX
lol... 1 trillion... he started it...

Only I have that sorta coin
well the richest man on earth is around 60 billion networth

without me stating it everybody know when i said i have trillion money this is a hypothetical case just to get a glimpse on how the amount of twice the dailyturnover affect the market
  • #36
  • Nov 20, 2012 2:38pm Nov 20, 2012 2:38pm
Quoting askingkalz
thanks for your information it gave me a better understanding on how the bank system works



well the richest man on earth is around 60 billion networth

without me stating it everybody know when i said i have trillion money this is a hypothetical case just to get a glimpse on how the amount of twice the dailyturnover affect the market
On eurusd alone average spot transaction per day probably in the range of 700 billion to 1.2 trillion per day...there are many sources just check...
  • #37
  • Nov 20, 2012 3:39pm Nov 20, 2012 3:39pm
.
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If you can't dazzle them with brilliance, baffle them with bullshit
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  • #38
  • Nov 20, 2012 5:31pm Nov 20, 2012 5:31pm
[quote=nasir.khan;6208114]For how a trade like yours work out, on the 5th page there is "2.9 A foreign Exchange Trade"...read it.

http://books.google.com.pk/books?id=...page&q&f=false

Hi Nasir,
thanks for that book recommendation it is indeed a great book.

MPX :-)
  • #39
  • Nov 20, 2012 9:04pm Nov 20, 2012 9:04pm
Quoting CindyXXXX
Exchange rate risk is a potential stain on returns of companies so this is a factor they wouldnobviously consider well in advance of the cruel transaction. They wouldnt for example just recieve a lump sum and "cash it in" for home currency. Likely this is planned in advance through options or futures to hedge the risk and handle by skilled traders at bank who need to cover another risk more along the lines of what nubcake was saying... Liquidity risk. If you want to sell 1 trillion Euros you need to find buyers to match that transaction obviously...
I've read a lot lately regarding on how the bank works , and from above poster on CHF Last august intervention and 1992 George Soros Black wednesday event you still can see it on chart monthly september 1992 soros short GBP for more than 10 billion . From that it shows that commercial bank will accept any amount of foreign currency because they trade it with the Central bank not other commercial bank so its pure business for them and im sure from soros stated profit of 1 billion he deliver a real money not leveraged .
  • #40
  • Edited Nov 21, 2012 1:47am Nov 20, 2012 10:20pm | Edited Nov 21, 2012 1:47am
Quoting askingkalz
I've read a lot lately regarding on how the bank works , and from above poster on CHF Last august intervention and 1992 George Soros Black wednesday event you still can see it on chart monthly september 1992 soros short GBP for more than 10 billion . From that it shows that commercial bank will accept any amount of foreign currency because they trade it with the Central bank not other commercial bank so its pure business for them and im sure from soros stated profit of 1 billion he deliver a real money not leveraged .
That's a fair call..

Let me try and clear up my blubbering mess above seeing as I can't edit or delete it... Main thing I was trying to say is

 

  1. Explain why daily turnover figure is so large (hot potato) effect
  2. The fact Microsoft and other large companies would surely take the exchange of their profits into consideration before converting large amounts into home currency
  3. Simply that no bank will just take an extremely large order and dump it on the market in one go.


That is all.

Surely a trillion dollar order is liquidity that all banks would be chomping at he bit for. Yes, but I guess the problem is how that bank would go about 1) finding the liquidity for the other side of that order and
2) ease that liquidity into the market without causing a nusence. That is the problem this order would cause.

Finally there is a very large difference between a Billion and a Trillion. Would be prudent of you to choose one or the other and stick with it for the sake of discussion.

Time hides Nothing
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