What is Forex?
Forex is the currency-trading market, also called foreign exchange fx and currency trading. On the Forex market, currencies are traded in pairs and trading is used to speculate on the strength of one currency against another. The most popular currency pairs include very liquid currencies like the Australian, US and Canadian dollar, plus the sterling, yen, euro and Swiss franc.
Who trades Forex?
Banks – banks of whatever size trade currency with one another electronically, and form the largest quantity of commercial turnover and speculation trading. When banks act as dealers for traders, the bid-offer spread represents the bank’s profit.
Central banks- central banks try to influence a states currency supply, inflation and rates and usually have suggested rates for all these. As they can use their Forex reserves to stabilize the market, they’re vital to the Forex market.
When central banks act in the Forex market it is to stabilize or increase the competitiveness of that state’s economy for instance, a central bank may weaken its own currency by making a further supply ( i.e.: printing money ) and then use this libfx token purchase another country’s currency. This weakens the domestic currency, which makes exports more competitive worldwide.
Hedge funds – hedge funds control uncountable billions of dollars of equity, enabling them to borrow millions more, and they’ve a reputation for assertive currency speculation. Due to their industrial power, it’s actually possible for hedge funds to overwhelm Central Bank intervention to support any currency.
Financial managers -finance managers with world portfolios need to purchase and sell currency to facilitate foreign security dealings. Both hedge funds and investment managers also make speculative Forex trades.
Firms – import and export firms conduct Forex transactions to pay for services and products, converting the local currency into a foreign currency to set the price for exports, then converting the profits into the domestic currency, then converting the domestic currency into another foreign currency for foreign imports.
Firms trade Forex to hedge the risk that a currency might move against them, making a business transaction more expensive than predicted.
Individual investors – individual Forex speculators make up the smallest group in the Forex market. That having been said, fx trade s are having a rapid growth in renown in this group with the advent of retail currency exchange platforms.
What does this mean for the currency market?
The result of having this many players in the currency market is that the currency exchange is a highly liquid, unregulated market that impacts businesses and economies globally.