The key players in the foreign exchange market

The foreign exchange market is, without a doubt, one of the largest markets in the world. Past statistics show an average, of $1,210 billion traded each day - which translates to every person in the world trading about $195 per day.

There are many reasons for participating in the foreign exchange trade, but some of the most common objectives are :

a. To earn short-term profits and to protect against losses that may be incurred from fluctuations in exchange rates.

b. The acquisition of foreign currency necessary to buy goods and services from other countries.

The bulk of all transactions, however , come from the four key players in the market, namely: banks, brokers, customers, and central banks.

a. Banks - It is hardly surprising that banks and other financial institutions take up the lion's share in the market. After all, they have the financial capacity to trade in huge amounts and they habitually engage and therefore have intense expertise in transactions involving money and other financial instruments. These are often bank to bank transactions where different financial institutions buy and sell currencies from and to each other and make a profit thereby.

b. Brokers - Brokers simply bring two parties together and earn through commissions. But they engage in the transaction habitually and repeatedly that their transactions, taken together, take up a huge share in the overall transactions in the market, making them a key player thereof.

c. Customers - these are mostly large companies that require foreign currency in the course of doing business or making investments. This is because such companies operate on an international level, and therefore have a demand for foreign currency of the countries with which they trade. Individuals can also be customers when they buy foreign currencies either for the purposes of travel, or simply to speculate on foreign exchange and earn profits therefrom.

d. Central Banks - the central banks from the different countries, as an agency of the government which they represent, usually intervene or participate in the FX market to influence or regulate the value of their currencies in line with their government policies or objectives. Usually they try to regulate the value of both foreign and local currencies because of their impact and importance on the economy.

These are the key players in the foreign exchange market. Taken together, the activity of these participants determine the trends and movement of the foreign exchange market.