Who Trades Forex?
Description: This article is about all the institutions and players in the forex trading market.
There are many players who trade forex for various reasons.
Governments and Central Banks
The central banks of countries play a vital role in forex markets. It is possible for them to stabilise the market simply by utilising their large forex reserves. They have an influence over the rise or fall of the country’s currency by controlling inflation, interest rates and money supply.
The banks undertake the majority of the forex transactions in the commercial world. They also handle huge amounts of speculative trading transactions on a daily basis. It is possible that some banks do transactions worth billions of dollars on a day-to-day basis. At times, this trading is done on their customers’ behalf; however, most of the trading is done by traders who are doing so for the bank’s account.
It is estimated that the majority of forex transactions that are traded are done on speculation. This implies that the institutions or person that purchased the currency has no intention of receiving that currency. The transaction is undertaken with the sole intention of weighing up that specific currency. Retail traders who speculate are small fry compared to the large hedge funds that speculate and control the huge amounts of funds being used in the currency trading markets every day.
Companies generally require foreign currency to purchase goods or pay for services from another country. They also need foreign currency to sell to foreign countries. Most of the forex activity that companies undertake is to complete business transactions between themselves and companies or consumers in a foreign country.
Investment firms use the foreign exchange market to do transactions related to foreign securities for their clients. An example of their trading is that an investment firm that controls a large international portfolio for a client may need to pay for securities they wish to purchase from foreign countries.
Retail Forex Traders
Individuals who are trading in foreign exchange make up this section of the market. This market is growing on a daily basis due to the accessibility to forex trading platforms via the internet. These foreign exchange traders access the forex market through banks or brokers. Two distinct types of retail FX brokers fall into this category, and they provide suitable speculation on the forex market: namely, dealers and brokers.
Dealers are often called market makers because they set up the market for a trader. They are the ones who quote the prices at which they are willing to deal and receive compensation by the variance between the sell and the buy price.
Brokers act as the agents for traders. Their job is to spot the best price available in the trading market, and secure it for their customer. They earn an income by charging a commission over and above the price that they secure in the trading market.
Individuals make use of the forex market when they travel or visit a foreign country. When they leave their home country, they often take traveller’s cheques, cash or credit cards with them to allow them to have purchasing power in their destination country.
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