Who Participates in the Forex Market?
In our last lesson, we discussed how the FX market has a huge daily turnover of around 7.5
trillion US dollars. Now, let’s explore who contributes to this huge daily turnover volume.
First, we have governments and central banks. They play a major role in the forex market,
either to strengthen or to weaken their currency. This can involve buying or selling currency
and adjusting their foreign exchange reserves.
Next are commercial banks and other financial institutions. They’re the go-to for businesses
and individuals needing foreign exchange services, whether it’s for imports, exports, or small-
scale transactions with other banks.
Then, there are companies repatriating profits. Take Toyota with a factory in the UK. At the
end of the year, when they want to send their UK profits back to Japan, the company will have
to go through the FX market to convert the pounds into Japanese Yen to send back home.
A fourth category is investors purchasing assets in foreign countries. For instance, if a
European investor wants to invest in US stocks, bonds, or real estate, he or she will need to
exchange Euros into US dollars to be able to invest in anything in the US.
The fifth category is speculators. Speculators are market participants who participate in risky
financial transactions with the primary goal of making profits from short-term price
movements in tradable financial instruments.
The last category is tourists and travellers. Individually, tourists do not significantly impact the
market but specific trends in the tourism industry can influence the FX market. For example,
during the summer months, UK citizens who go on holiday to southern European countries
like Portugal, Spain, Southern France, Italy, Greece, Cyprus and Malta will need to exchange
their UK pounds into Euros. Given there are millions of tourists, this can have a notable effect
on the FX market.
We hope that we have highlighted some of the key categories in this lesson, although there
are certainly more.