The main players in the forex market
Who are the main players in the forex market? This question is asked by all traders at some point. In fact, the answer to this question is not complicated, as market participants are divided into 6 categories, namely.
First and foremost, it's the governments. Governments use the forex market to achieve certain economic goals whether it is a lower exchange rate compared to a particular currency or vice versa. In most cases the central bank is the financial arm of the government but sometimes the central bank is more independent, the central bank also uses the foreign exchange market to move its reserve currency and monitor the situation and things like interest rates, inflation, etc.
Then we have the normal banks the normal banks trade in the forex market to determine the exchange rates that should govern the exchange of currencies like when you and I go to a bank and do exchanges there or do it in transactions, those transactions are minuscule compared to what the banks deal in at the level International. They move billions if not trillions of dollars just to make sure they have the correct coins they need for their activities.
Other financial institutions also participate in the forex market, for example pension funds in the United States. They have huge companies that have a lot and a lot of money, and sometimes you need to make transactions in the forex market.
Other players in the market include regular companies such as BMW, General Motors, Coca-Cola and any other multinational company you can think of. This is because these companies have operations all over the world and are therefore forced to convert currencies all the time. For example, BMW may order some cars or parts from Japan and in this way have to convert euros into yen and pay for the goods. Unless it's future agreements like an agreement to buy cars after a year in these cases, most companies do something called hedging. And what they're doing is that instead of waiting for like a year to convert euros into yen, they're actually going to create a forward contract with a bank that says they'll need the yen after a year and they're going to create a solution or agree a fixed rate with that bank. This activity is called hedging. These are the cases where they do not need to buy another currency right away but when they need it at a later time. Therefore, it is called “hedging” because they hedge themselves or protect themselves from foreign exchange risks.
And another type of major players in the market are hedge funds. Hedge funds are actually funds or organizations designed to speculate in the forex market and bring profits to their investors. So, even though they are called hedge funds, they are now mostly developed somewhat to look for profit.So they take big money from investors and then try to trade that money in the market to make profits and earn fees. Plus they earn commissions if they make profits.
Finally, normal traders like you, me and George Soros are just people who trade the forex market for profit, they are also participants in the forex market. They represent about ten percent of the market. For example, George Soros managed to make a profit of more than one billion dollars in one month. This is one of the reasons behind his popularity.
And so all these participants together as you can imagine create huge amounts of huge money and to be more precise, the daily turnover in the forex market according to Deutsche Bank is close to six trillion dollars. To be clear, the largest stock exchange in the world is the New York Stock Exchange with a daily turnover of $70 billion, while in the forex market, you have five trillion dollars circulating in the market every day and it just goes to show that forex is by far the largest financial market in the world.