Central banks, which represent the government of their country, are extremely important players in the foreign exchange market. Central banks' open market operations and interest rate policies greatly influence exchange rates. A central bank is the predominant monetary authority of a nation. Central banks obey individual economic policies.
They are usually under the authority of the government. They facilitate government monetary policies (which seek to maintain the supply and availability of money) and develop strategies to smooth the ups and downs in the value of their currency. We've talked about reserve assets before. Central banks are the bodies responsible for maintaining foreign currency deposits called reserves, also known as official reserves or international reserves.
Reserves held by a country's central banks are used to deal with foreign relations policies. The value of reserves indicates significant attributes of a country's ability to pay external debts; it also affects the nation's credit rating measures. The following figure shows the central banks of several European countries. The following figure shows some prominent companies and corporations in the Forex markets.
Understanding how major players in the Forex market use the markets can help you find that important niche and trading advantage. It is essential that you understand the nature of the spot forex market and who are the main players in the foreign exchange market. Suddenly, the barriers that prevented an average citizen from trying to trade Forex had disappeared. Take your trading to the next level, accelerate your learning curve with my free Forex training program.
Individual traders and “Hedge Funds” are the most aggressive large participants in Forex markets, trading solely to make a profit through their trading. The advent of retail Forex brokers allowed individual Forex traders to invest much smaller sums, and it was no longer necessary to have an army of brokers and traders at their full disposal to participate in this form of investment. With close to 90% of all trading volume, speculators, as players in the foreign exchange market, come in all shapes and sizes. However, the 1990s brought with it a perfect storm for currency trading: dozens of economies had begun the transition to capitalism, and technology, particularly the Internet and electronic communication networks, revolutionized communication and information exchange.
Like companies, national governments participate in the foreign exchange market for their operations, international trade payments and management of their foreign exchange reserves. A car company recently attributed a large part of its profits to its Forex trading activities. Due to its enormous size, impressive liquidity and relative stability, the foreign exchange market has attracted a number of high-net-worth individual traders, owner-bank operators and hedge fund operators who have made a collective currency trading currencies speculatively. A large percentage of the retail forex market is made up of individual speculators who take relatively small positions in their margin accounts of online forex brokers.
For a long time, Forex trading was a field that was only available to large institutions with an enormous amount of capital, such as governments and banks. Unless a retail Forex broker has high capital reserves, they cannot trade with major liquidity providers and have access to all the advantages, including the tight spreads that come with having huge amounts of capital. With the increase in Forex trading over the past few decades, and as more people make a living trading, the popularity of riskier investment vehicles, such as hedge funds, has increased. The volume of forex trades made by retail investors is extremely low compared to financial institutions and companies.