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Trading Manual part 3: Who trades in the Forex market?

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Trading Manual part 3: Who trades in the Forex market?

 

Banks and Other Financial Institutions

Next to the central banks and governments, banks and financial institutions count to
some of the largest participants which are involved with Forex transactions. Most
people who need Foreign currency execute these transactions via their local bank.
Those transactions are usually made for travelling etc. The place where banks are
trading currencies with each other is called the “interbank market”. Banks make
currency transactions with each other through electronic brokering systems.
Sometimes the trading is being done for customers, but most of the time the huge
capital of the bank is traded to achieve sky high profits.

Banks, in general, act as dealers in the sense that they are willing to buy/sell a
currency at the bid/ask price. One way that banks make money on the Forex market
is by exchanging currency at a higher price than they paid to obtain it.

Companies

Also companies belong to the main aspects of the Forex market. They are constantly
exchanging currencies to fulfil various business transactions. You must remember
that all those companies will use the services of commercial banks because they do
not have direct access to the currency exchange market. So let’s give you an example.
A bicycle producer who is based in the United States imports different parts from
Germany; As you’ve noticed he already need 1 Foreign currency. If he sells the final
product to multiple countries, he will constantly need to exchange the profits into
USD. So, you can clearly make up the exchange rate’s DO matter for him.

Government and Central Banks

Probably the most influential players on the Forex market are the banks and the
federal governments. In most countries, the central banks is an extension of the
government itself and handles a policy which is approved by the government.
However, some governments feel that an independent central bank is the ways
forward in balancing goals as; managing inflation and keeping the interest rates low.
This usually causes economic growth. It doesn’t matter how independent the central
bank may be, they usually have regular meetings with the government to discuss the
monetary policy.

Central banks are responsible for fixing the Forex rates. All action which is taken by a
central bank is mostly done to stabilize or to compete a nation’s economy. All of their
decisions, policies but also their decisions trigger the increase or decrease in the
value of their own currency rates. This can be found in inflation and certain things as
Interest rates etc.

 

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Investors (small) and Retail traders

As mentioned before, with the term retail traders we are referring to people just like
ourselves; Trading from their home- or small offices all around the world. When we
compare the overall trading volume to the banks and large financial institutions, we
can see that its extremely low. However, these days this sector is growing extremely
fast. This can be explained quite easily; These days Forex trading is extremely
accessible thanks to all those online broker platforms around. You need to be aware
that Retail traders access the market indirectly. They use an online broker platform,
or a bank. Most of the trades placed are executed after their price action analyses
which we will teach you in this course. These participants also trade in order to make
profit, and not to drive the price to a certain level…!

Next part of the guide Releasing soon!

 

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