There are over a hundred currencies in the world, all reacting constantly to national and international news and market forces. This built-in volatility makes the Forex market the most fluid in the financial world. It is also the largest, with trading taking place 24 hours a day, five days a week from Sunday afternoon through Friday afternoon. Even though only a few currencies - the American dollar, the Japanese yen and the euro - account for the bulk of the trading in the foreign exchange market, there are an average of more than five trillion trades per day.
Who is playing in this game? Is the Forex market a place for the individual investor to be?
Although its popularity is on the rise, few forex market trades come from individual investors in comparison with banks and financial institutions. The fundamentals of trading foreign exchanges are much like trading equities - you just need to apply them to countries and not companies.
Who is playing in this game? Is the Forex market a place for the individual investor to be?
Banks
Since their function is to handle money it is no surprise that banks are the biggest traders of foreign currencies. About half of all trades on the Forex market are executed among banks, a phenomenon known as "interbank trades." While many of these are performed as a service for customers with international business, a high percentage of transactions are speculative plays from the banks' own accounts, attempting to cash in on the short-term volatility of the Forex market.Central Banks
While investment bankers are the most ubiquitous traders in the forex market, it is the central banks that carry the most clout. These national money watchdogs possess the power to intervene with a currency, jiggling the value of a nation's money to maximize that country's economy on the world stage. This can be done to juice exports or reign in galloping domestic inflation for instance. A Forex trader needs to be ever vigilant in assessing the actions of a central bank.Hedge Funds
Hedge fund managers are the largest group of non-institutional investors in foreign currencies. Often they are trading currencies as part of an international portfolio for large accounts. But investment managers will also engage in speculative bets on the future values of another country's currency.Corporations
Multinational companies buying raw materials and selling products are entwined in the Forex markets. With so many foreign transactions taking place, companies can find themselves exposed to unnecessary risks involved in currency fluctuations. To counter these dangerous positions managers will trade on the Forex exchange to hedge against such risk.Although its popularity is on the rise, few forex market trades come from individual investors in comparison with banks and financial institutions. The fundamentals of trading foreign exchanges are much like trading equities - you just need to apply them to countries and not companies.
Editors’ Picks
EUR/USD weakens to near 1.1900 as traders eye US data
EUR/USD eases to near 1.1900 in Tuesday's European trading hours, snapping the two-day winning streak. Markets turn cautious, lifting the haven demand for the US Dollar ahead of the release of key US economic data, including Retail Sales and ADP Employment Change 4-week average.
GBP/USD stays in the red below 1.3700 on renewed USD demand
GBP/USD trades on a weaker note below 1.3700 in the European session on Tuesday. The pair faces challenges due to renewed US Dollar demand, UK political risks and rising expectations of a March Bank of England rate cut. The immediate focus is now on the US Retail Sales data.
USD/JPY drops toward 155.00 as focus shifts to US data
USD/JPY meets fresh supply and inches closer toward 155.00 in the Asian session on Tuesday. The Japanese Yen holds the upper hand over the US Dollar after Japanese Prime Minister Sanae Takaichi led the ruling Liberal Democratic Party to a historic landslide win and on intervention talks. Traders brace for key US economic data that could offer more clues on the Federal Reserve's monetary policy.
Editors’ Picks
EUR/USD weakens to near 1.1900 as traders eye US data
EUR/USD eases to near 1.1900 in Tuesday's European trading hours, snapping the two-day winning streak. Markets turn cautious, lifting the haven demand for the US Dollar ahead of the release of key US economic data, including Retail Sales and ADP Employment Change 4-week average.
GBP/USD stays in the red below 1.3700 on renewed USD demand
GBP/USD trades on a weaker note below 1.3700 in the European session on Tuesday. The pair faces challenges due to renewed US Dollar demand, UK political risks and rising expectations of a March Bank of England rate cut. The immediate focus is now on the US Retail Sales data.
Gold sticks to modest losses above $5,000 ahead of US data
Gold sticks to modest intraday losses through the first half of the European session, though it holds comfortably above the $5,000 psychological mark and the daily swing low. The outcome of Japan's snap election on Sunday removes political uncertainty, which along with signs of easing tensions in the Middle East, remains supportive of the upbeat market mood. This turns out to be a key factor exerting downward pressure on the safe-haven precious metal.
Bitcoin Cash trades lower, risks dead-cat bounce amid bearish signals
Bitcoin Cash trades in the red below $522 at the time of writing on Tuesday, after multiple rejections at key resistance. BCH’s derivatives and on-chain indicators point to growing bearish sentiment and raise the risk of a dead-cat bounce toward lower support levels.
Follow the money, what USD/JPY in Tokyo is really telling you
Over the past two Tokyo sessions, this has not been a rate story. Not even close. Interest rate differentials have been spectators, not drivers. What has moved USD/JPY in local hours has been flow and flow alone.
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