Participants In Forex market

The forex market world is the place where we buy and sell the currencies. In the trading process, buying the foreign currency for low prices and selling it at high rates is always connected to high risk. Unlike the equity market, there are additional participants in forex online. It is important to identify and understand the functions of the main participants in forex market.

Governments and Central Banks

Understandably, some of the major forex market are the central banks and federal governments. In most countries, you will find the central bank conducting its policy in tandem with the government, as extension of the government. It is felt by most governments that a more independent central bank would be more useful in stemming inflation and keeping interest rates low, thus stimulating the economic growth of the country. Government and central bank representatives have regular consultations to discuss monetary policy.

The Central banks as participants in online forex market, manipulate reserve volumes in order to meet certain economic goals. With extremely deep pockets and using the foreign exchange market to adjust their reserve volumes, they apply an important influence on the currency markets.

Banks and Other Financial Institutions

apart from the central banks and governments, other main participants in forex online are banks and financial institutions. Most people deal with neighborhood banks for their requirement of foreign currency for small-scale transactions. The interbank market is the platform for all the banks for transacting with each other. They determine the currency price that individual traders see on their trading platforms. Only those banks that have credit relationships with each other can engage in transactions. If the bank is large, more credit relationships it will have and it can access the pricing better for its customers.

Banks, in general, are seen as forex market participants, who are buying or selling a currency at the bid/ask price. As the forex market world is a decentralized market, it is common to see different banks having slightly different exchange rates for the same currency.

Hedgers

Banks have the biggest clients in the form of businesses dealing with international transactions. Whether it involves selling to an international client or buying from an international supplier, it will have to face the volatility of fluctuating currencies. The management and shareholders detest dealing with the uncertainty and the risks in forex market world. To minimize the risks in trading, businesses quite frequently employ hedging strategies for their transactions. They have a significant role to play as participants in online forex market.

Speculators

Another class of participants in forex market are the speculators. Involved with foreign exchange-related transactions, speculators try making money by taking advantage of fluctuating exchange-rate levels. They don’t hedge against the exchange rates movements like the hedgers.