Forex market participants come in all sizes

Central Banks and Governments

Policies that are implemented by governments and central banks can play a major role 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 exchanges 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 need to purchase that country’s currency and again change it back into his own currency once he returns. He is in fact trading currencies.

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.

Who trades Forex? Just about everybody does directly or indirectly. If you’ve bought something made in another country, traveled to another country or sent money to a family member abroad, you’ve helped the prices of that currency and the base currency change. Of course, the major players are moving large pools of money, but every investor, trader or vacationer tries to make a reasonable estimation about where prices are going so they can take advantage of it. This is what makes FX trading different from trading equities or bonds, and the Forex market is open 24 hours a day. Forex trading is impacted by economic indicators from countries around the world. No wonder it’s the largest trading market.