Who make up the Forex Market?

the forex market explained

Before starting to trade forex it is important to understand which different parties make up the market and what they use the markets for. When you fully understand this you will be better able to judge the markets reaction to various pieces of news be they economic data announcements, political situations or company performance announcements.

In days gone by (a very long time ago) importers and exporters would have been some of the major players in the forex markets. Not any more. Now most of the volume of trades are executed as a result of huge capital transactions. Globalization has meant that investment managers such as pension fund manager are now increasingly able and willing to make foreign investments. When they do so they need the forex markets to either buy securities, hedge out some of their risks or simply to speculate and attempt to make pure forex gains.

These institutional investors increasingly move their money around the globe in search of better returns. Perhaps the most famous forex trade goes by the name of the Carry Trade. This is where investors sold Japanese Yen, which has had historically very low interest rates and bought into US Dollars which had maintained comparatively high interest rates.

Increasingly computerization and the spread and speed of the Internet have meant that it has become much cheaper and more accessible for the private individual investor to play the forex markets. Despite this however a large proportion of the forex markets are dominated by the large investment banks such as Deutsche bank and Goldman Sachs. Their scale means they can benefit from large economies of scale and invest in computerization to allow further growth and add value to their customers.