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  • Jun Wang
  • Posted Articles: 13
  • Last Posted: 2017-07-20 09:09:43
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Who Trades in the Forex Market?

2015-07-20 09:49:57

The foreign exchange market has several players: banks, central banks, companies, individual investors, and investment managers. How do they affect the world’s largest and most liquid market?


Banks



The interbank market holds the greatest volume of traded currencies, a place where all types of banks trade in the forex market with each other via electronic networks. Banks process forex dealings for clients and facilitate speculative trades. Huge banks attribute for a large portion of total forex trades. When banks facilitate trades on behalf of their clients, they generate profit from the bid-ask spread. In case of speculative currency trades, they cash in on fluctuations.


Central Banks



Being the most important market participant in the currency market, central banks’ monetary policies and interest rate policies impact exchange rates on a large scale. Their actions or decisions seek to stabilize or raise the competitiveness of a country’s economy. In some cases, these institutions may intercede for their currencies to appreciate or decline. For example, the Swiss National Bank depreciated its own currency to optimize their exports in the global market.


Companies



Corporations that are in the business of importing and exporting facilitate currency transactions to pay for products and services. In essence, firms trade currencies to hedge the risk relative to converting currencies. For instance, an German automaker imports Japanese parts and sells the products in America. Upon selling the vehicles, the US dollar must be exchanged to euros. And the German company must exchange euros for Japanese yen to purchase the components.


Individual Investors



Trades coming from retail investors are way lower than those of banks and other institutions. But because of technology and the increasing popularity of forex, more and more individual investors are getting into the market. They anchor their base currency trades on numerous fundamental and technical indicators.


Investment Managers



Investment managers are considered the second largest currency market players. Managers trade forex for big accounts, including endowments and pension funds. If they handle an international portfolio, they need to buy and sell currencies in order to trade foreign securities. These managers can also execute speculative forex trades, if necessary.


Different forex participants. Different goals. Different reasons for trading. Nevertheless, they shape the foreign exchange market and the global economy.