Foreign Exchange Market Participants

The world of Forex is exhaustive and there is no end to information in this intensely competitive market. Before we read about participants of foreign exchange market, let us read about it in order to develop and maintain a clear understanding.

Foreign exchange means foreign currency and consists of all credits, deposits, and balance payable in any other currency of the world and any letter of credit, bills of exchange, draft, or traveler’s cheques expressed or drawn in a specific currency but payable in any foreign currency .

Let us now read about the dominant players in Forex market .

Customers. This group is a part of the foreign exchange market. in context of foreign trade participation, by availing the services of banks. It is worthwhile to note here that exporters are expected to convert amount payable in foreign currency by paying currency of their country and importers are expected to convert currency of their country to foreign currency. For example — An European importer will be required to covert EURO to pay an American importer (in USD) and the importer will be required to convert USD to EURO.

Central Bank. Every country of the world has a Central Bank, which is assigned the responsibility of maintaining external value of the domestic currency, and this is executed by interventions of the Central Bank.

Commercial Bank. These banks are the most active of all Forex market players and provide services for converting one currency to another. With wide network of branches, commercial banks buy foreign exchange from exporters and sell it to importers.

Exchange Brokers. The extent, to which services of brokers, residing in other countries are utilized, is dependent upon the tradition and practices prevailing at a specific Forex market center. Locally based brokers can conduct Forex transactions as per the rules and regulations of the Forex governing body of their respective country.

Overseas Forex market. The Forex market is a 24-hour market and the market day initiates with Tokyo and followed by Singapore, India, Bahrain, Frankfurt, Paris, London, New York, and Sydney before things are back with Tokyo the next day.

Speculators. In order to make profit on the account of favorable exchange rate movements, speculators buy foreign currency if it is expected to appreciate and sell foreign currency if it is expected to depreciate. They follow the practice of delaying covering exposures and not offering a cover till the time cash flow is materialized.