Impact of participants in the Forex market

Forex market

The high liquidity in the Forex market is the result of the number of participants in the Forex market that have an impact on the movement of prices

Therefore, identifying market participants and their motives is very important in determining the direction of prices

Central banks and governments

They can said to be the most influential participants in currency markets. In many countries, the central bank represents the government and acts in accordance with the policies and initiatives of its government

However, some governments prefer a more independent central bank, but they work side by side to keep interest rates at an appropriate level, reduce inflation, and stimulate economic growth

Regardless of the degree of independence of central banks, governments regularly consult with them on issues involving monetary policy. Thus, central banks and governments are usually a single force in terms of monetary policy of the state

Commercial banks and financial institutions

Banks form the largest unit of participants in the Forex market. Individuals who need small amounts of foreign exchange deal with market fluctuations naturally as the value of currency movements will be small,

but these transactions together constitute a large part of the financial deliberations that take place between banks

Large banks dominate commercial banks, and in order for these commercial banks to continue their business, they have to establish trust relationships between each other.

Larger banks have a higher credit level and better financing rates that allow them to offer their services to commercial banks on their own. In general, large banks are like traders who buy and sell currencies, as they need them

Investment and hedge funds

Among the most important customers of corporate banks with international transactions. If the business is buying from a foreign client or selling to an overseas supplier, the company must deal with currency fluctuation

One of the most important risks for most companies is uncertainty about the currency exchange rate. For many multinationals, Forex risk management is an important issue. To clarify, a French company places an order to buy equipment from a manufacturer in Japan.

It is required to pay 50% of the value of the Japanese Yen before the delivery of this equipment, which will be after one year to allow the manufacture. Due to the possibility of severe price fluctuations that could occur within a year, the French company will have no way of knowing whether or not it will have to pay a higher value in euros if the price of the yen rises when the time comes to pay

Individual traders

Speculators are another type of forex market participant. Instead of exchanging currencies for international transactions or hedge against price movements, they make profits from forex trading by taking advantage of currency fluctuations. With margin trading and technological advances, individuals become a significant part of the financial market participants

An example of individual traders with an impact on financial markets is billionaire George Soros, who made $ 1.1 billion in less than a month because of his forecast of a fall in the British pound. On the other hand, derivatives trader Nick Lisson caused his company to collapse after losing $ 1.4 billion due to speculative futures


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