Who Trades in the Forex Market (and Why)?
The forex market is known to be the world’s biggest financial market. The forex market boasts daily volume worth 5.1 trillion USD, according to a survey of Forex and OTC derivatives markets by Triennial Central Bank Survey in 2016.
The forex market has global financial centers in different places in the world; the major ones include Tokyo, London, Hong Kong, etc.
The forex market offers unique opportunities to make lots of profits since it has no centralized system. In this blog, we will go through the forex market briefly — and why lots of traders flock into the forex market daily.
Forex or foreign exchange makes it possible to buy and sell currencies 24 hours a day, five days a week across major financial bases in the world.
When trading in the forex market, it is essential to note the exchange rate, which is the price of one currency exchanged for another.
With that in mind, you also need to know that they are different currencies worldwide today, but the most widely used ones during trades in the Forex market are the U.S dollar, Japanese yen, Euro, British Pound, Swiss franc, Australian dollar, New Zealand dollar, and Canadian dollar.
People can trade different currencies via spot transactions forwards, and swaps.
Groups That Trade in Forex and Why
They are different groups that trade in Forex, but who are they?
- Banks: The Interbank market has the most significant volume of currency that can be traded by large banks via electronic networks. This type of bank has the largest share of the total currency volume trades in the world, and they foster foreign exchange transactions for customers and handle speculative.
It is essential to know that speculative trades by these large banks are performed for taking profit on currency changes.
- Central Banks: As the name suggests, central banks are the elephant in the room when it comes to the forex market. A central bank fixes its respective country’s currency price; its interest rate influences the currency rate.
There are different functions of the central bank – it is also responsible for fixing the price of its native currency on forex.
The central bank also takes actions in the forex market; its efforts are geared towards stabilizing or increasing the competitiveness of the concerned nation’s economy. It can also intervene in making a nation’s currency depreciate or appreciate it.
The central bank also makes use of adequate measures to decrease inflations, and it functions as a ‘long-term’ indicator for forex traders.
- Individual Investors: Retail investors are one of the groups involved in the forex markets. Although their volume of forex trades isn’t that high when compared to financial institutions and companies –the numbers are growing steadily. Individual investors make use of interest rate parity, inflation rates, and other fundamentals to make trades in the forex market.
- Hedge Funds & Investment Managers: Investment managers are also one of the big guns of the forex market. This set trade currency for large accounts such as endowments and pension funds.
- Corporations: Corporations that engage in the import and export of services and goods perform forex transactions. Firms that trade in the forex market hedge the risks related to foreign currency fluctuations.