If you are an avid Forex trader, chances are that you have at least heard of some basic information regarding how big banks trade Forex. But in reality, most people are unaware of the fact that this information is actually quite accurate, because most people who talk about this type of information don't really know what they are talking about. In this article I'm going to discuss some basic information regarding how large banks trade Forex. Hopefully by the time you've finished reading this article you will know exactly what you're talking about.
The term "big banks" generally refers to the largest financial institutions in the country such as the big five banks in the United States. Although they do have large trading accounts, these aren't usually made up of hundreds of millions of dollars worth of assets, so most people don't think of them as being big enough to be mentioned as being big banks.
On the other hand, there are a number of smaller banks out there, which are much less well known. The fact is that banks can be very profitable, but they also have the potential for becoming extremely risky, depending on how risky a bank is willing to go at any given time. Many banks have been known to trade their clients' funds into large amounts of risk, and then later sell off those losses for profits. This happens quite often with smaller banks and smaller portfolios of clients.
If you have any doubts whatsoever that these large financial institutions can be very profitable, then it's time you put your doubts to rest. In the last few years alone there have been several big scandals involving trading clients' accounts. One scandal was actually quite devastating, because it led to the resignation of several top-level executives at Bank of America. Other scandals involving big banks have caused major losses, although none has yet led to an actual resignation.
So, why does this matter to me, and why should you care? Well, because large institutions like these can have quite drastic effects on the value of the currency that you hold. When banks begin to trade their clients' funds into too much risk, then that can have a huge impact on the value of the money that you hold, and the money that you can potentially lose. It would not be surprising to find yourself losing a significant amount of money if you had your entire accounts stolen by a large bank.
Small banks tend to be more conservative with their investment portfolios. They tend to invest more in cash funds that have higher levels of liquidity, and low credit risk, which means that they are less likely to trade their own funds in an unpredictable foreign currency market. If a small bank were to trade their clients' funds in an unpredictable foreign currency market, then their portfolio value would take a massive drop because they'd be relying so heavily on fluctuations in that foreign currency market.