Types Of Foreign Exchange Market

Types Of Foreign Exchange Market

Classified according to the external form of the foreign exchange market, the foreign exchange market can be divided into the invisible foreign exchange market and the tangible foreign exchange market.

Here we discuss six major Types of Foreign Exchange Market, More about the main features of these Types of Foreign Exchange Market and complete introduction.

Invisible Foreign Exchange Market


Also known as the abstract foreign exchange market, it refers to the foreign exchange market without a fixed and specific place. This kind of market was initially popular in the United Kingdom and the United States, so its organizational form is called the Anglo-American method. Now, this form of the organization not only extends to other regions such as Canada and Tokyo but also penetrates into the European continent

The main features of the invisible foreign exchange market are:

First, there is no definite opening and closing time.

Second, there is no need for foreign exchange buyers and sellers to conduct face-to-face transactions. Foreign exchange suppliers and demanders rely on telex, telegraph and telephone to communicate with foreign exchange institutions.

Third, there is a good trust relationship between the entities, otherwise, this kind of transaction will be difficult to complete. At present, in addition to the foreign exchange transactions between some banks and customers in individual continental European countries, foreign exchange transactions are conducted through modern communication networks in all countries in the world. The invisible foreign exchange market has become the dominant form of the foreign exchange market.

Visible foreign exchange market

Also called a specific foreign exchange market, it refers to a foreign exchange market with a specific fixed location. This kind of market was initially popular in the European continent, so its organizational form is called the continental method.

The main features of the tangible foreign exchange market are:

First, fixed locations generally refer to foreign exchange exchanges, usually located in financial centers around the world.

Second, both parties engaged in foreign exchange business operations conduct foreign exchange transactions within the specified time on each trading day. During the period of free competition, foreign exchange transactions in Western countries were mainly concentrated on foreign exchange exchanges. However, after entering the monopoly stage, banks monopolized foreign exchange transactions, which led to the decline of foreign exchange exchanges.

Classified according to the degree of foreign exchange control, the foreign exchange market can be divided into a free foreign exchange market, foreign exchange black market, and official market.

Free Foreign Exchange Market

It refers to a market where governments, institutions, and individuals can buy and sell foreign exchange in any currency and any amount.

The main features of the free foreign exchange market are: First, the foreign exchange traded is not regulated.

Second, the transaction process is open. For example, the foreign exchange markets in the United States, Britain, France, and Switzerland are all free foreign exchange markets.

Forex Black Market

Refers to the market for illegal foreign exchange transactions. The main features of the foreign exchange black market are:

First, it was created under the conditions of government restrictions or laws prohibiting foreign exchange transactions.

Second, the transaction process is non-public. Since most developing countries implement foreign exchange control policies and do not allow free foreign exchange markets to exist, the foreign exchange black market in these countries is more common.

Official Market

Refers to the market where foreign exchange is bought and sold in accordance with the government’s foreign exchange control laws. This kind of foreign exchange market has specific regulations on participants, exchange rates, and transaction processes. In developing countries, the official market is more common.

According to the scope of foreign exchange trading, the foreign exchange market can be divided into foreign exchange wholesale market and foreign exchange retail market .

Foreign exchange wholesale market: refers to foreign exchange transactions and venues between banks. Its main feature is the large scale of transactions.

Foreign Exchange Retail Market:

refers to foreign exchange transactions and venues between banks and individual and corporate customers. Foreign Exchange Retail Market is completely different from other types of foreign exchange markets.

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