TMCnet Feature
January 22, 2021

Who Trades on the Forex Market and Why



Of all financial markets, none can rival Forex in terms of popularity. The foreign exchange market is open 24 hours a day and accessible from all over the world. Its daily turnover is in excess of 6 trillion dollars, making it the most popular choice among traders and investors. If you have ever wondered who exactly engages in Forex trading and why, this article will answer all of your questions.



The Big Players

The greatest volume of trading on the Forex market comes from banks and other huge corporations.

Private Banks

Both commercial and investment banks need to trade on the Forex market daily. First, they do this to ensure their own supply of foreign currency. Secondly, there are traders within each bank who manage that institution’s investment portfolio. They trade to increase the bank’s profits and hedge its money against losses. Lastly, banks may also trade on behalf of their clients if they offer that type of investment service.

Central Banks

The main job of a central bank is to manage a country’s monetary policy and control the national currency. Thus, central banks have the power to determine the flow of their respective national currencies. They will engage in trading on the financial markets to help currencies rise or fall in value, which helps them manage inflation rates.

Other Participants

Though banks are the largest users of the Forex market, there are many others who participate in financial trading daily.

Fund Managers

The managers in charge of hedge or investment funds trade daily to make a profit and increase the fund size. They also trade to hedge people’s investments and protect them from risks. This ensures that even if one bad trade is made, there are enough successful trades to compensate for it.

Companies

Big companies with international operations need to exchange large sums of money every day. For example, they might exchange profits from foreign countries into the currency of the place where the company is based. They may also buy foreign currency to pay for any materials or labor they buy abroad.

Individuals

Last but not least, individual traders also engage in the Forex market constantly. Thanks to discount brokers, people can open personal trading accounts and try their hand at what banks and investment managers do. Some may do this on a smaller scale, working with pocket change. Others prefer to invest large sums to gain a steady income from trading, or to increase their savings.

Conclusion

Thanks to both big and small participants working together, the Forex market enjoys constant attention. The reasons for trading vary greatly: from hedging investments and controlling monetary policy to simply earning a profit. All things considered, Forex trading will certainly continue to grow in popularity.



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