In 1998, the Federal Reserve Bank of New York did a study of the 93 major foreign exchange dealers in the United States. In order to be a participant, the dealer had to be located in the United States and maintain an active role in the market. The survey found reported daily transactions of $351 billion for traditional products: foreign exchange swaps, spot, and outright forwards. Another $32 billion traded hands daily in non-traditional products like currency swaps and options.
Of the daily turnover, 49 percent of the transactions were "interdealer" transactions, or trades between the 93 participants themselves and with foreign dealers. Of the remaining 51 percent, 20 percent of the transactions were from non-financial participants and 31 percent were from financial participants. These other market players include: international corporations, investment banks, small commercial banks, hedge funds, money funds, and pension funds. For most of the non-financial participants, the currency exchange is part of the payment process for completing international purchases or hedging activity. As you can tell, the Forex market is dominated by large financial institutions. This does not mean, however, a small investor can't participate in the Forex market. With advances in communication, namely the Internet, individuals have real-time access to the Forex market. Now one can open an account with as little as $250 and instantly access the currency market. Trading currencies is not without risk though. High leverage capabilities--up to 400:1 in some instances--increase profit potential but also increases potential for loss. In the case of major events, a currency may experience a "fast market" where prices are highly volatile with large price spreads. For the most part the high liquidity of the currency market ensures price stability and tight spreads.
