Table of Contents
Chapter 1: What is Forex Trading
Chapter 2: History of Money and Origins of Forex Trading
Chapter 3: Forex Trading Terminology
Chapter 4: Important Aspects of Forex Trading
Chapter 5: Players in The Forex Market
Chapter 6: Factors that Affect the Forex Market
Chapter 7: Risks Involved With Trading Forex
Chapter 8: Why Trade in the Forex Market
Chapter 9: How Forex Trading Works
Chapter 10: How to be a Successful Forex Trader
Navigate This Page
Chapter 5: Players in The Forex Market
– Businesses
– Banks
– Governments
– Individual Investors
Chapter 5: Players in The Forex Market
There are many players in the forex market with different goals and needs. The high liquidity, flexibility and versatile nature of the market makes this an ideal playing ground for many kinds of investors. Let’s have a brief look at the participants in this market:
Business are regular players in the forex market. This market makes it easy for them to buy and sell from counterparts in other countries. Any buy or sell transaction involves exchange of money for some products and when the two parties come from different countries, the difference in currencies can create a huge obstacle to trade.
By letting businesses convert their currency into that of the selling firm’s country, the forex market facilitates trade. The liquid nature of the market and the huge volume ensures that no matter how much currency is required, it can be accessed from the forex market.
As businesses increasingly expand operations into locations across the world, a new need has emerged. Employees in different countries have to be paid in foreign currency. Many multi nationals opt for forex trading to meet their foreign currency requirements to fulfill this need.
Banks serve as distribution houses for forex currency to individuals. A bank customer who needs to travel abroad may convert domestic currency to foreign currency to meet his expenses during travel. Small investors may also use banks as dealers to conduct forex trade. As the volume of his trade is likely to be just a fraction of what the bank actually trades in, his deals are enabled from the bank’s reserves directly.
The bank’s own reserves of currencies are managed with the help of interbank transactions. These transactions involve trading currencies with other banks and financial institutions. Small investor trades and customer-bank trades form a very small proportion of the forex market when compared with interbank transactions. About 50% of all forex transactions are interbank trades.
Some large investors do carry out their forex trades through their bank, but most of banks’ forex trade falls under the category of interbank trade. Top level banks from all countries participate actively in this market.
Governments also have a share in forex trade and they use this to maintain a positive trend in the economy through various strategies. A government does not usually participate directly in trades but does this through central banks. The monetary policy to be followed is usually implemented in various ways by the central bank. One of these ways is through forex trading.
The forex reserves of a country are also maintained by judicious forex trading by central banks. Proper maintenance of forex reserves is critical to keep the import markets active. Import processes, in turn, need to be facilitated in a disruption free manner to keep businesses and industries active and to maintain production levels.
Some countries, where the domestic currency depends on or is linked to a predominantly used global currency like the US dollar, buy and sell currency through the central bank. This helps keep the value of the domestic currency steady.
Executing forex trades has been made very easy through the use of computers and the internet. This has brought in a huge number of individual investors looking to make profits in this market. And this number is all set to grow as investors show lesser interest in equity investments after the stock market crash in 2008.
Next Chapter: Factors that Affect the Forex Market