Just like any other market, the FOREX market has its key players who also happen to have different interests in the market. The FOREX market is a decentralized market and therefore most of the players act independently; resulting to different prices being quoted by different players for the same currencies in the market.
Among the major participants in the FX market we have the following:
- Governments and Central Banks
Through the use of monetary policies applied by central banks, governments are able to manipulate their foreign exchange reserves in order to achieve specific economic goals.
When buying and selling the foreign currencies, the government can influence the exchange rates in a big way depending on how much it is selling or buying.
- Banks and other Financial Institutions
These institutions act as dealers in foreign exchange through buying and selling of foreign currencies at the bid and ask prices. They can trade the foreign currencies with individuals who need to transact small-scale transactions; or trade amongst the banks themselves in large volumes in what is called interbank market.
These are financial institutions that are used by investors in forward and future contracts. Traders engage the hedgers in situations of uncertainty about future movement in prices for transactions entered into today involving foreign currencies. The hedgers guarantee them a fixed exchange rate in the future when the contract entered today shall mature, thus reducing the risk the investor faces when dealing in international trade.
Hedgers are therefore at the core of FX market as they help in smoothening international trade.
This is a group of participants in the FX market who come in to take advantage of the fluctuations in the exchange rates to make gains at the FX markets. The speculators buy the various currencies when they feel their prices are lower and sell them when the prices have gone higher in order to make gains.
Speculators have nothing to do with exchanging currencies to fund international trade or hedging against movements in exchange rates.
The above form the major players in the FX market and knowing their interest in the market and how they affect the exchange rates is critical for anyone who wishes to invest in the FX market.