In Forex Trading, it is important that a newbie knows who are participating in the Forex arena. Below-mentioned are the major players in this market.
Central Banks and Governments- Monetary Policies such as Interest Rate that are implemented by central banks or governments can play a major and critical role in the Forex market. Central banks provide financial stability by controlling a country’s money supply.
Banks- A major portion of the Forex market turnover is from banks. Large banks literally trade billion and billion of currency every working day. This could be in the form of hedging or speculative purposes.
Hedge Funds- By now, you should know that the Forex market has high liquidity, hence it is a major attraction for trading. Hedge Fund managers have increasingly allocated big portions of their portfolios to speculate on the Forex market. Another advantage is a higher degree of leverage available to them as compared to the stock or equity market.
Large Multinational Corporation (MNCs)- The reason why Forex market is in existence is due primarily to global trade. With the highly interrelated global market place, goods are imported or exported to many countries. Payment for these goods and services may be made and received in different currencies. Billion and billions of dollars are exchanges every day for global trade transaction.
Retail Investors and Speculators- In reality, there isn’t much difference between the two. Both are in the market hoping to make money by exploiting the movement of a currency pair. Each has their reason to believe why a currency will move up or down and in turn long or short a currency accordingly. According to a survey conducted by the Bank for International Settlements (BIS) in April 2007, average daily trading volume for the Forex market reached an all-time record high of US$3.2 Trillion. A 71% increase from US$1.9 Trillion that was traded in April 2004. This increase is due mainly to the participation of retail investors utilizing broker’s electronic trading platform.
You and Me- When we have our holiday aboard or travelling overseas on business trips, we would naturally need to buy that country’s currency and upon return, revert back to our own nation’s currency. When we are using our credit cards to make overseas purchases, our credit card company has to convert our purchases into out home currency in order to bill us. Not knowingly, we are already trading currencies.