Forex Market Players
In general, forex market players come from various groups including:
- Customers (multinational companies, insurance companies, etc.).
- Banks and financial institutions.
- Forex broker
- Government (Central Bank, Commercial Bank).
- Business actors (importers, exporters).
Customers, like multinational companies, participate in the forex market because they need foreign currency for their trade in other countries. For example, companies based in the UK need to use the foreign exchange market to buy the currency they need to pay their partner companies in other countries who are their suppliers.
Banks and financial institutions are the most active participants and become one of the biggest players in forex transactions. Interbank markets, for example, are markets where large banks transact themselves and determine the price of a currency as seen by individual traders.
In general, banks act as dealers who buy / sell currencies at their bid / ask prices. One way banks get money is to sell currencies at a higher price than those purchased from their customers. Because the forex market is not centralized or decentralized, it is only natural that there are differences in currency exchange rates between one bank and another.
Understanding of Forex Market Players
Is a company with telephone lines to banks throughout the world. This is the job of a forex broker to find out which bank is the highest currency. With brokerage services, banks make it the best transaction in foreign exchange transactions. This brokerage company is not directly related to money itself. However they only charge commissions for their services.
Central bank – the government
is the most influential forex trading agent. In many countries, the central bank is an extension of the government and together with the government runs policies in the monetary sector. However, some governments that are increasingly independent A central bank is increasingly effective in carrying out its duties to improve the economy. Regardless of how independent a central bank is, government representatives usually consult with central bank representatives to discuss monetary policy. So, the government and the central bank usually have one package in terms of regulating monetary policy. Central banks also often intervene in markets for the purpose of the country’s economic stability.
This is one of the biggest clients of large commercial banks. They are directly or indirectly involved in international financial transactions. These business people sell products to their clients in the international trade channel. They also buy goods from international suppliers, so they have to deal with volatility in currency fluctuations.
Uncertainty is something that business owners hate. Facing foreign exchange risk is a big problem for multinational companies. For example, a company in Germany ordered equipment from a factory in Japan. The equipment must be paid in yen one year from now.
Exchange rates can fluctuate wildly throughout the year. These German companies will not know whether they will spend more or less euros when shipping. This is something uncertain. So one way that business people do is go to the spot market. Then transact directly for the currency they need. Unfortunately business people may not have enough money to make spot transactions. Or do not want to hold a large amount of foreign currency for a long time. Therefore business people often implement strategies. That is a hedge to lock a particular currency at a certain price position for future purposes.
One of the famous speculators is George Soros. He is a billionaire known for his speculative actions which then lowered the value of the British Pound. Soros alone can generate 1.2 billion dollars in action in less than a month. Some critics say that this person was responsible for the financial crisis in Asia in late 1997.