Commercial And Investment Banks

What are Commercial and Investment Banks?

Commercial and investment banks are the most important players in the forex market. These banks are involved in currency trading for various purposes such as hedging, speculation, and providing services to their clients.

Commercial Banks

Commercial banks are the primary source of liquidity in the forex market, as they buy and sell currencies in large volumes, which enables them to offer competitive rates to their clients and other market participants, including retail clients, small businesses, and large corporations.

Investment Banks

Investment banks trade in large volumes and have access to their interbank market, where large transactions between banks and other financial institutions, such as multinational corporations and institutional investors, take place. They also provide advisory services to their clients, including mergers and acquisitions, underwriting, and trading of financial instruments including currencies.

Another important role that commercial and investment banks play in the forex market is providing hedging services to their clients. Hedging is a risk management technique used by companies and investors to protect against adverse price movements in the forex market.

For example, if a company exports goods to a foreign country and receives payment in a foreign currency, it may face the risk of the currency depreciating before it can convert the currency into its currency. To mitigate this risk, the company may enter into a hedging transaction with a bank, which will lock in a favorable exchange rate for future transactions.