Market players mainly are commercial banks executing orders from exporters, importers, investment institutions, insurance and retirement funds, hedgers and private investors.
This article is originally referred from IFC Market Education.
Market players mainly are commercial banks executing orders from exporters, importers, investment institutions, insurance and retirement funds, hedgers and private investors. Commercial banks also perform trading operations in their own interests and at their own expenses. Daily turnover of the largest banks often exceeds several billions of U.S. Dollars and many make their main profit by speculative operations with currency.
Brokerage houses are also playing an important role of contractor between large numbers of banks, funds, commission houses, dealing centers, etc.
Commercial Banks and Brokerage Houses do not only execute currency exchange operations at prices set by other active players, but come out with their own prices as well, actively influencing the price formation process and the market life. That is why they are called market makers.
In contrast to the above, passive players cannot set their own quotations and make trades at quotations offered by active market players. Passive market players normally pursue the following aims: payment of export- import contracts, foreign industrial investments, opening of branches abroad or creation of joint ventures, tourism, speculation on rate difference, hedging of currency risks (insurance against losses in case of unfavorable price changes), etc.
The composition of the participants witnesses that this market is actively used by serious business and for serious purposes. That is not all market participants are working on Forex for speculative purposes. As already mentioned, a change in currency exchange rates may lead to huge losses in export-import operations. Attempts to protect against currency risks force exporters and importers to apply certain hedging instruments: forward deals, options, futures, etc. Moreover, even a business that is not associated with export-import operations, may incur losses in case of changes in currency exchange rates. Therefore, the study of Forex is a mandatory component of any successful business.
Market players can be divided into several groups:
Original Source: IFC Market Education