The Role of a Currency Dealer

There are two currencies that have become market makers in the currencies market over the years. This pair of currencies is the US dollars and the Euro. There is always just one dealer who gives quotes for the currencies.

The dealer can have another dealer for the small transactions. This scenario rings true for most of the major currencies where their dealers do a lot of activities. There is only one dealer on the commodity currencies however this also depends on the volume sometimes there can be more than one dealer.

This is major since the banks wishes to ensure that every dealer knows a lot about the currency and has a good comprehension for the behavior of the currency and of the other participants in the forex market. For example typically, a dealer for the Australian dollar can also be responsible for the New Zealand currency and there will be another dealer creating quotes for the Canadian currency. A "crosses dealer" is very rare. A crosses dealer is a dealer primarily responsible for making quotes in a liquid currency.

An example of this is a trader for the Japanese yen creating quotes for the entire yen crosses. There is also another dealer who handles the exotic currencies like the South African rand and the Mexican currency of peso. This arrangement is usually copied across the three big centers for trading which is in New York, Tokyo and London. Each of the center pass the order the order of the clients after each day to make sure the order will be watched for twenty four hours everyday.

How do banks make the prices?

The dealers in the bank can determine the prices. They base the price on many factors which includes the present rates in the market like the volume that is available at the present level of the prices. They can also make the prices based on the views they have for the direction of the currencies and its position in the inventory. If the dealers deem that the euro is going in a higher price direction then they might make a much competitive price for the customers who wish to sell more euros since they also believe that if these customers are given this chance then they will most likely hold onto it for some pips and then they can offset them for a better rate.

On the other hand, if the dealers deem that the euro is going down and the customers are offering them more euros, they will likely offer a lower rate since it will be unsure if they will be able to sell the euro back in the forex market for the same price. This activity of not offering fixed spreads is distinct only to market makers.