Who Trades in Forex market?
There are a lot of players in the forex market:
The more large amount of currency is traded on the interbank market. This is where the banks of all sizes trade currency with each other and through electronic networks. Account of major banks for a large percentage of the total volume of currency trades. Banks facilitate the trading forex for customers and make speculative trades of their commercial offices. When banks act as brokers for customers, the gap represents the Bank’s profits. Speculative currency trades are finished to profit on currency fluctuations.
Central banks are very important players in the forex market. Open market and Central Bank interest rate policy operations influence Exchange rates to a very large extent.
Central banks are responsible for the setting of forex. It is the exchange rate regime by which a currency is traded on the open market. Floating, fixed and indexed is the types of Exchange.
Any measure taken by a Central Bank in the market Forex is done to stabilize or increase the competitiveness of the economy of this country. Central banks as well as Governments And speculators may engage in currency interventions for their assessment or depreciate. During periods of deflationary trends for long, for example, a Central Bank may weaken its currency by creating an additional supply, which is then used to buy foreign currencies. This weakens the domestic currency, making exports more competitive on the world market.
Central banks use these strategies to calm inflation, but they can also provide clues to long-term for Forex traders. For more information, see how the Inflation-fighting Techniques affect the currency market.
Investment Managers and Hedge Funds
After banks, portfolio managers, unions, and hedge funds represent the second largest collection of players in the forex market. Investment managers currency trading for large accounts such as pension funds and endowments. Placement with an international portfolio manager to buy and sell currencies for trade in foreign securities. Investment managers can also bring speculative forex trades. Hedge funds execute speculative currency trades as well.
Companies engaged in the import and export of forex transactions conducted to pay for goods and services. For example, a German producer of solar panels, which imports American components and selling the final products in China. After the final sale is made, the Chinese yuan should be converted back into euros. The German firm to Exchange euros for dollars to buy American parts.
Forex trading companies to cover the risk associated with foreign currency translations. The same German firm could buy U.S. dollars on the spot market, or a currency swap agreement to get dollars before buying components of American society to reduce the risk of exposure to currencies. (Hedge against foreign exchange risk can add a level of security for your offshore investments. For more information, see Protect your Foreign Investments of the exchange rate risk).
The volume of trading by retail investors is too low to compare with banks and other financial institutions, but forex trading is quickly gaining popularity. Investor’s base retail currency trades at a combination of fundamentals (parity of interest rates, inflation rates, expectations of monetary policy, etc.) and technical factors (support, resistance, technical indicators, trends on prices).
Obviously, the players in the forex market trade currencies for very different reasons. Speculative transactions – performed by banks, financial institutions, hedge funds and individual investors – are profit motivated. Central banks move markets forex considerably through monetary policy, exchange rate regime affecting and, in rare cases, currency intervention. Corporate currency is for global business operations and risk of the hedge. (The use of the margin to trade in the Forex market can amplify the profit potential.