Who Trades On The Forex Market?

forex traders

The Forex market, foreign exchange market, is considered to be the current the biggest financial market in the world. As a matter of fact, the currency market is several times bigger than the stock market. This is the one sector of the financial industry where a certain type of currency is exchanged for another type. There are several unique attributes related to Forex that may be surprising to those who are trading for the first time.

This introductory look at Forex will help you understand why and how more traders are choosing this type of investment.

Understanding Forex

Forex is the exchange rate for the price that is paid for one currency in exchange for another currency. These are the types of exchanges that help to drive the market.

There are over 100 different types of currency in the world. However, most of the common Forex trades and payments are made through the US Dollar, Euro and the Yen. Other commonly traded currencies are the British pound, the Canadian Dollar, the Australian Dollar, the Swiss krona and the Swiss franc.

The currency can be traded through several platforms including:

forex platforms• Spot transactions
• Option contracts
• Forwards
• Swaps

It can be traded anywhere where the underlying trading instrument is currency. This type of trading has continuously around the globe 24 hours a day, only 5 days a week. The difference in having a profitable trade and ending up in the red may be as easy as making sure you choose the right type of account.

Who Are Forex Traders?

There are several different types of traders in the Forex market. Banks provide the greatest volume of trades in the market. Banks if all sizes trade through the interlink market. Banks help to facilitate Forex transactions for their clients, and even conduct trades for themselves.

Another type of Forex trader is the central bank. One of the most popular players in the Forex market, open market operations and policies on interest rates influence currency rates to a large extent.

When an action is taken in the Forex market by a central bank, it is usually done to stabilize or increase that particular nation’s economy. It is not uncommon for central banks to engage in certain interventions to make their country’s currency appreciate or depreciate.

After banks, portfolio managers, investment managers and hedge funds are the most common types of Forex traders. These professionals trade currencies for accounts such as pension funds and endowments. Investment managers and hedge funds make speculative Forex trades.

Individual investors account for the lowest volume of Forex trades compared to those trades made by financial institutions and banks. However, Forex trading has been gaining in popularity. Retail investors base their currency trades on a combination of technical and fundamental factors.

Forex investors trade currency for different reasons. Speculative trades by banks and investment managers are purely for profit. Central banks focus on exchange regime setting, while corporations trade currency to hedge risk and to finance global organizations. Forex trading can provide many profit opportunities.

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