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The term "forex" is derived from "foreign exchange". It is usually used for mutual exchange of freely convertible currencies, but not for the totality of foreign exchange transactions. On the basis of objectives, forex operations can be trading, speculative, hedging and regulating (central banks’ interventions in the foreign exchange market).
Forex is an international inter bank market. Operations are carried out through such institutions as central banks, commercial banks, investment banks, brokers and dealing centres, retirement funds, insurance companies, transnational companies etc. The volume of one contract with a delivery of real currency on the second working day (spot market) usually amounts to approximately $ 5 million or the equivalent sum. The value of one conversion payment is ranged from 60 to 300 US dollars. Moreover, around $ 6000 per month are spent on the inter bank informational trading terminal.
Thus, the exchange of insignificant amounts is not conducted on Forex. For conversions of smaller amounts it is better to address a financial intermediary (a bank or an exchange broker) which executes the operations for a certain percent of the transaction amount. Intermediaries do not need to operate on the foreign exchange market if they have many clients and differently directed orders. Though, they always get commissions from their customers. Due the fact that not all the clients' orders go to Forex, the intermediaries can offer lower charges to their clients than the cost of direct operations on Forex. At the same time, if the intermediaries are eliminated, the exchange costs for the clients will increase. The current quotations are used for a large number of operations which do not always get directly to Forex. For example, the changing of the national currency rate by the central bank that has to preserve the ratio of the international currencies in compliance with their proportions on Forex, even if the real supply/demand in a country does not correspond to the tendencies on Forex. For instance, if the supply of the euro is excessive on the domestic market, while the EUR/USD price is increasing on Forex, the central bank will have to increase the price, rather than reduce it, being pressurized by the excessive supply. Another vivid example is a margin speculative currency trading devoted to the fixation of current forex quotations. However it does not imply the real delivery. Almost all intermediaries offer direct exchange services as well as speculative trading with the leverage on the currency market. Generally, commissions for such operations are much lower than those for direct conversion, because the necessity in the real contracts for delivery concluding appears rather seldom due to large-scale involvement and fugacity of trades. Often such commissions are taken in the form of a spread – a fixed difference between Bid and Ask prices quoted at the same particular moment. Commonly, a chain of intermediaries exists between Forex and a speculator, with every intermediary taking its charge. Margin operations can lead (though not necessary do) to the real additional demand and supply formation on the currency market, especially within a short-term period. However they cannot develop the general trend of the currency rates’ movement.
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