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Currently Browsing: Forex Market

Participants in the Forex Market

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With the development of the world economic crisis, more and more companies and individuals are attracted to trading currencies on the forex (foreign exchange) market. Forex market is an international OTC market (“over-the-counter” market) intended for currency trading. It is decentralized, meaning that it does not have the headquarters. It is self-regulated and it does not include the stock exchange or clearing house. Thanks to the structure like this, it takes no compensation for clearing and exchange, which reduces transaction costs. If you want to participate in the forex market I recommend starting with Free Money System

forexForex market includes more groups of participants, with different needs and interests, who trade directly with each other. They can be divided into participants belonging to the interbank market participants and those who belong to the retail market.

Let us explain interbank market first. It allows transactions to foreign assets between central banks, commercial banks and financial institutions, and it includes these entities:

  • Central Bank – The national central banks (e.g. Federal Reserve System in the US or Reserve Bank of Australia) play a very important role in the forex market. They have the main say in monetary policy and their role is to ensure price stability and provide economic growth. To achieve this, they control the entire money supply in the economy of a country by determining interest rates and requirements related to cash reserves. They also manage the foreign exchange reserves of countries, which they use to influence market conditions and exchange rates.
  • Commercial banks – Commercial banks (e.g. “Deutsche Bank” or “Citibank” in the US) carry out the volume of trading which provides liquidity to the forex market on daily basis. One part of their trading refers to the conversion of foreign currency in accordance with the needs of the user. The second part relates to the activities of speculative trading, and it is executed by their departments of trading.
  • Financial Institutions – financial institutions (e.g. investment companies, pension funds investment funds, and brokerage companies) have the obligation of trading foreign currencies, in order to provide their clients with the best investment opportunities. A portfolio manager of international capital is obliged to engage in trading currencies so that he can be able to sell and buy foreign shares.


When it comes to retail market, it is used for transactions carried out by smaller traders and investors. forex brokers are those who execute these transactions are executed and they act as intermediaries between the retail and interbank markets. Participants in this market are hedge funds, corporations and individuals.

 

  • Hedge Funds – they are private investment funds engaged in speculative trading with various instruments using leverage. The so-called “macro” hedge funds seek opportunities for trading in the forex market. They create and execute trade transactions after conducting macroeconomic analysis of the problems which the country’s currency and the country itself are facing. Due to the high level of liquidity and their fierce strategy, they contribute a lot to the dynamics of the forex market.
  • Corporations are the companies which carry out import and export activities and which cooperate with similar foreign companies of the same type. Their main activity requires the purchase and sale of foreign currency so that it can be exchanged for goods, which exposes them to currency risk. They convert currencies through the forex market and protect themselves against upcoming changes in exchange rates.
  • Individuals are individual traders and investors who also trade on the forex market trying to make a profit on the basis of assumptions about the amount of foreign exchange in the future. They mostly use forex platforms that offer small spreads, prompt execution of orders and invoices with high leverage.

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