Insights ยป Main Participants of Forex

Main Participants of Forex

The Forex market is a huge and highly volatile multi-trillion dollar market.  Below are the specific groups of market participants that shapes and even moves the Forex market one way or another.

Governments and Central Banks
With extremely deep pockets, this group is arguably the most influential participants in the Forex market.  Governments and central banks trade currencies to improve economic conditions or to adjust economic and financial imbalances of their own respective countries.  Central banks have the financial power to manipulate their country's reserve volumes, inflation rates, interest rates, and economic growth.  Using these tactics, governments and central banks work in tandem to achieve the monetary and economic agendas of their countries.

Banks, Brokers, and Other Financial Institutions
Large banks trade currencies with other banks through the Interbank market.  The Interbank market is a wholesale market through which most currency transactions are channeled through.  These banks transact with one another via electronic brokering systems.  One way that banks and brokers profit from the Forex market is by exchange currencies at a premium compared to the price they previously paid for them.  Since the Forex market is a decentralized market, it is not uncommon to see different banks with slightly different exchange rates for the same currency pair.

Businesses and Corporations
Forex trading is an integral part of businesses that deals with international import and export transactions.  Whether a business is buying from an international supplier or a business is selling products to an international buyer, fluctuating currencies could have a tremendous impact on their cash flow and operations.  By executing hedging strategies, businesses can lock in specific exchange rates that will benefit them in future transactions or they could entirely remove all exchange rate risk from a transaction.

Investors and Speculators
This group includes a wide range of participants spanning from private asset management companies to hedge funds to individual Forex traders.  Rather than hedging against movements in exchange rates or exchanging currencies to fund international transactions, the speculator's main objective is to take advantage of the continuously fluctuating currency rates solely for trading profits.