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How are the currencies traded? US Bank A maintains an account with British Bank B but it’s dollar account Now an American business with account in Bank A is p

How are the currencies traded? US Bank A maintains an account with British Bank B but it’s dollar account Now an American business with account in Bank A is paying a British contractor $100 in Bank B So Bank B is going to subtract $100 from Bank A’s Dollar denominated account and add GBP 84 to the British contractors account. What happens in between? How did those dollars become pounds?

rr888 4y ago
A foreign exchange is an exchange, ie there are two sides. Each starts with one thing and ends up with another. In your example American Bank A starts with $100 and ends up with £84, British Bank (or an intermediary) has to have someone who wants dollars (or is a Market Maker), that person will give their pounds and end up with the dollars. Having two parties and two banks makes it a bit complicated. If you think of a guy behind a desk in an airport trading cash - you give him $100 and get £84, the guy behind the desk started with £84 and now has $100. (The next customer might pay £87 to get $100 - the desk makes a small profit and both customers have exchanged what they wanted)
- mikymoothrowa 4y ago
  Where is this exchange? Clearly if the price changes can be reported with such high precision, it needs to be based on a solid value from an exchange or a set of real exchanges instead of an aggregate of all the airport guys exchanging cash. (For that matter, even the airport guys don’t set their own prices. They set a commission on top of the day’s forex rate)
  - rr888 4y ago
    There is no exchange, no central price. If you see a price on TV or somewhere its what a given bank or instution quotes, or maybe a blend of quotes. This is probably true of everything now, if you buy Apple stock you probably aren't trading on Nasdaq you trade on some hedge fund algo, the Nasdaq price is an approximation of what bid/ask you'll trade at.
dkjaudyeqooe 4y ago
Like everything else, they either already had pounds to sell, or they went to the market (ie, another seller) to buy pounds so they could resell them. The currencies themselves are merely entries in a (bank) ledger for an account denominated in the given currency. The same with shares, options and other intangibles; they are records in institutions that are empowered to hold them.
- mikymoothrowa 4y ago
  Two questions: 1. What/Where is this market? What’s the forex equivalent of NYSE or NASDAQ 2. Even If both the banks hold the other country’s currency, (which in most cases they won’t), how do they know what the exchange rate is.
  - dkjaudyeqooe 4y ago
    FX is a shared or "distributed" market between the institutions that trade, such as big international banks and other market participants. They would use a shared electronic market (reporting) to determine the price. It's not exchange (as in NYSE) based. The exchange rate is set by what the market participants are willing to trade at. Banks can hold numerous currencies by having banking licences in the respective countries. See here for more details: https://en.wikipedia.org/wiki/Foreign_exchange_market https://en.wikipedia.org/wiki/Foreign_exchange_market

rr888 4y ago

A foreign exchange is an exchange, ie there are two sides. Each starts with one thing and ends up with another. In your example American Bank A starts with $100 and ends up with £84, British Bank (or an intermediary) has to have someone who wants dollars (or is a Market Maker), that person will give their pounds and end up with the dollars. Having two parties and two banks makes it a bit complicated. If you think of a guy behind a desk in an airport trading cash - you give him $100 and get £84, the guy behind the desk started with £84 and now has $100. (The next customer might pay £87 to get $100 - the desk makes a small profit and both customers have exchanged what they wanted)

mikymoothrowa 4y ago
Where is this exchange? Clearly if the price changes can be reported with such high precision, it needs to be based on a solid value from an exchange or a set of real exchanges instead of an aggregate of all the airport guys exchanging cash. (For that matter, even the airport guys don’t set their own prices. They set a commission on top of the day’s forex rate)
- rr888 4y ago
  There is no exchange, no central price. If you see a price on TV or somewhere its what a given bank or instution quotes, or maybe a blend of quotes. This is probably true of everything now, if you buy Apple stock you probably aren't trading on Nasdaq you trade on some hedge fund algo, the Nasdaq price is an approximation of what bid/ask you'll trade at.

dkjaudyeqooe 4y ago

Like everything else, they either already had pounds to sell, or they went to the market (ie, another seller) to buy pounds so they could resell them. The currencies themselves are merely entries in a (bank) ledger for an account denominated in the given currency. The same with shares, options and other intangibles; they are records in institutions that are empowered to hold them.

mikymoothrowa 4y ago
Two questions: 1. What/Where is this market? What’s the forex equivalent of NYSE or NASDAQ 2. Even If both the banks hold the other country’s currency, (which in most cases they won’t), how do they know what the exchange rate is.
- dkjaudyeqooe 4y ago
  FX is a shared or "distributed" market between the institutions that trade, such as big international banks and other market participants. They would use a shared electronic market (reporting) to determine the price. It's not exchange (as in NYSE) based. The exchange rate is set by what the market participants are willing to trade at. Banks can hold numerous currencies by having banking licences in the respective countries. See here for more details: https://en.wikipedia.org/wiki/Foreign_exchange_market https://en.wikipedia.org/wiki/Foreign_exchange_market