Market Participants on Forex Trading
Forex trading is a growing business industry with currency exchange being the nature of the trading market. Foreign exchange trading is a worldwide trading industry with global coverage of participating entities. Most of the participants in currency exchange are Central Banks, multinational commercial companies, banks involved in inter-bank marketing, investment firms, hedge funds involvement and retail forex brokers.
The National Central Bank has an important role to play in the forex trading market. They are basically the controller in terms of the money supplied, inflation rates and the interest rates. They often exhibit an official target rates with their own currencies. Substantially using their foreign exchange reserves, Central Banks have the ability to stabilize the forex market. Most Central Bank's stabilization strategy is geared towards the goal of buying when the currency exchange rate is low and to sell the currency when the rate goes high. Central Banks does not suffer from bankruptcy compared to other participating traders because of their stocked foreign exchange reserves. Most Central Banks participates mainly for the objectives of aligning the currency to suit their economic needs.
The role played by the multinational commercial companies in foreign exchange trading involves the financial activities of these companies to seek currency exchange for paying goods and services. These participating groups in forex trading have little impact on the market rates however commercial companies can contribute fairly well in the forex market with unpredictable outcomes.
Inter-bank marketing covers majority of the commercial trading daily. Banks may trade multi-billion of dollars in behalf of their customers but mostly trading its own account. The old conventional way of broker's intervention with foreign exchange transactions through facilitation of inter-bank trading at a specific broker's fee to pay has been changed by the modern electronic systems. Currently the modern way of conducting inter-bank trading is through a broker squawk box that allows traders to listen to an on-going inter-bank trading in trading rooms.
The investment management firms are responsible of managing their customer's large accounts mostly pensions and endowment funds in which they use the foreign exchange market in order to facilitate security with foreign transactions. Most of these investment firms have currency operation specialists that manage their client's currency exposure in order to generate profits at a minimal risk. The large asset values under this specialist program can also generate larger trades despite being small in numbers.
The hedge fund involved comprises of private investment fund charged with a performance fee that is limitedly open to a few qualified investors to join. These investors can typically control equity of billion dollars and has the capacity to borrow for billion dollars more which can overwhelm the Central Bank's intervention in supporting any currency.
Lastly are the retail forex brokers who comprise of about only 2% of the total forex market and the unexperienced retail brokers can be a vulnerable target to forex scams. Therefore, it is important that prior to any participation with the forex trading market, ensure that you have enough knowledge about the trading industry you will be engaging in to avoid too much financial loss and try to aim to become an educated forex trader.