Player on the forex market welcome back to the course in Forex trading. Today we will talk about the Forex market participants. So here...
Player on the forex market
welcome back to the course in Forex trading. Today we will talk about the Forex market participants. So here's the Forex market, and who are the major players here will first of both corsets.
Governments. Governments use the Forex market to meet certain economic goals, whether it's to have a lower exchange rate compared to a certain currency or a higher exchange rate.
It all depends on where the company car countries importing or exporting goods and many various other factors.
Also, the central bank in most cases, the central bank is the financial arm of the government, but sometimes the central bank is more independent for some countries and central bank also uses the Forex market to move around its reserve of currency and monitor the situation and things like inflation, interest rates, and so on.
Next, we've got normal banks, normal banks trade Forex my trade on the Forex market to define which exchange rates should govern the exchange of currencies and those like when you and I we go to a bank and we do exchanges there or do the certain transaction.
Those transactions are minuscule compared to what banks deal at an international level.
They throw around billions if not trillions of dollars just to make sure that they have the right currencies that they need for their activities.
Also, other financial institutions participated in the Forex market, and an example of that would be the pension funds in the US the massive massive companies who have lots and lots of money and sometimes they need to make transactions on the Forex market as well other players in the Forex market include normal companies such as BMW, Coca-Cola, General Motors, and any other multinational company that you can think of is because these companies have operations across the globe, and therefore they are forced to convert currencies all the time in order to pay suppliers, pay employees and so on.
For example, Coca-Cola might be paying some employees that it has some were Indian have to convert dollars into rupees, or, for instance, BMW might be ordering some parts from Japan and that way they have to convert euro into yen and pay for those parts.
Another good example is when BMW might order the parts from Japan and get them but they only have to pay them for them in one year.
So within that situation. They have two options.
They can either create the product sell it and then one year later pay for the parts but then they will have to convert euros into yen's one year later and the price of years might have gone up by then and that will mean that BMW will lose on this of four exchange transaction and this loss will I eat into it so profits of from the normal operations.
So in those cases. Most companies do something which is called a hedge and what they do is they instead of waiting one year to convert their euros into yens.
They will actually create a forward contract with the bank saying that they will need to yen's in one year and they will create a fix or agree on a fixed price.
Now with that bank but to buy those unions one year from now the adjective is called hedging and therefore these companies are sometimes referred to as hedgers.
So are not do. These are instances when they don't need to buy the other currency immediately, but when they will need it later on.
And so they're called hedgers because they are hedging themselves or protecting themselves from this foreign exchange risk and actually a lot of companies across the globe undertake this activity.
Another type of major players in the Forex market is hedge funds are hedge funds are actually funds that are or organizations that are designed to speculate on the Forex market and bring profits to their investors.
So even though the cold hedge funds there. Mostly will now live from the kind of developed to become very aggressive and profit-seeking.
So they take on a large funds from investors and then they try to trade these of this money on the Forex market to make profits and the earned fees and plus the commissions if they do create profits and finally the normal traders such as you and I and George Soros just people who speculate on the Forex market to make a profit.
So there are also participants of the Forex market, and for example, George Soros was able to make room over $1 billion all for profit in one month.
That's that's one of the reasons why care what he's famous for and so all those participants together.
As you can imagine creating massive and massive volumes of money and to be more precise, the volume of the Forex market is $5 trillion.
That is five and older zeros behind it and that is her day $5 trillion goes through the Forex market that's an unbelievable amount of money and just to put that into comparison, the largest stock exchange in the world is the New York Stock Exchange and the total market capitalization of the New York Stock Exchange.
That means if you take all the companies that are listed on the New York stock exchange.
And you put all of their values together, then you will get only 18 .7 trillion dollars and that's a total capitalization of that exchange wears on the Forex market, you have $5 trillion going through the market per day, and that just shows that the Forex market is by far the biggest financial market in the world so that sums it up for today.
I look forward to seeing her next toil and until then, happy trading
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