Central Banks And Governments
Policies that are implemented by governments and central banks can
play a major roll in the FX market. Central banks can play an
important part in controlling the country's money supply to insure
financial stability.
Banks
A large part of FX turnover is from banks. Large banks can literally
trade billions of dollars daily. This can take the form of a service to
their customers or they themselves speculate on the FX market.
Hedge Funds
As we know the FX market can be extremely liquid which is why it
can be desirable to trade. Hedge Funds have increasingly allocated
portions of their portfolios to speculate on the FX market. Another
advantage Hedge Funds can utilize is a much higher degree of
leverage than would typically be found in the equity markets.
Corporate Businesses
The FX market mainstay is that of international trade. Many
companies have to import or exports goods to different countries all
around the world. Payment for these goods and services may be
made and received in different currencies. Many billions of dollars are
exchanged daily to facilitate trade. The timing of those transactions
can dramatically affect a company's balance sheet.
The Man In The Street
Although you may not think it, the man in the street also plays a part
in today's FX world. Every time he goes on holiday overseas he
normally would need to purchase that country's currency and again
change it back into his own currency once he returns home.
Unwittingly he is in fact trading Forex.
He may also purchase goods and services whilst overseas and his
credit card company has to convert those sales back into his base
currency in order to charge him.
Speculators And Investors
We shall differentiate speculators from investors here with the
definition that an investor has a much longer time horizon in which he
expects his investment to yield a profit. Regardless of the difference,
both speculators and investors will approach the FX market to exploit
the movement in currency pairs.
They both will have their reason for believing a particular currency will
perform better or worse as the case may be and will buy or sell
accordingly. They may decide that the Euro will appreciate against
the US Dollar and take what is called a long position in Euro. If the
Euro does in fact gain ground against the US Dollar they will have
made a profit.
