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Marty Sockolov
PostPosted: Thu May 23, 2024 3:21 pm    Post subject: Role of Forex in Financial Markets

The foreign exchange market is distinct as it does not have a single, physical address like Wall Street. Instead, it is a vast global network of computers and brokers. Unlike other financial markets, Forex operates 24 hours a day, five days a week as it has a decentralized nature, with trading centres scattered all around the world.

Forex has many major players placing trades at all times. Some of them are as follows:

Governments and Central Banks
Central banks serve as key participants in the forex market since they represent their country's government. Currency rates are significantly influenced by the open market activities and interest rate policy of a central bank.

A central bank is responsible for setting the exchange rate for its national currency. Its currency will trade on the open market under this system of exchange rates. There are three distinct types of exchange rate regimes, floating, fixed, and pegged.

Any action taken by the central bank in the FX market is to stabilize or boost the competitiveness of that nation's currency. To increase or decrease the value of their currencies, central banks and speculators may intervene in the market. These tactics are employed by central banks to regulate inflation. For forex traders, their actions also function as a long-term indicator.

Commercial Banks
Commercial banks are among the key players in the foreign exchange. They not only trade for themselves but also serve as channels for their clients to participate in the market. They support the FX market and are vital for maintaining liquidity. Commercial banks take part in the market as speculators in addition to helping their clients execute their trades. They are called proprietary trading desks. Here, the goal of the prop traders is to generate profits for the bank.

Banks are one of the best-informed players in the forex. This is simply because of the infrastructure, the amount of capital they have access to, and perhaps most importantly, their market knowledge.

Retail Traders
Individual traders may employ a prime broker if they have the requisite cash, although they often enter the market through a retail broker. Retail traders can use leverage because it just costs a minimal sum of money to create a trading account.

Retail traders constitute a small volume of forex traders compared to MNCs and banks. Nevertheless, the volume of such traders is rising rapidly and gaining momentum. Retail investors base their trades on both technical and fundamental factors.

Commercial Companies/MNCs
Various corporations, such as international companies or exporters/importers, are included in this category. Their primary objective in currency trading is to hedge their currency risk or collect the foreign currency they require to pay their employees abroad and similar objectives.   Also, offshore investments can gain from hedging against currency risk, which can increase their level of safety and security.

Hedge Funds
Hedge funds are the most well-known members of the category of participants of the forex market. Hedge funds can hold significant market positions as important participants in the market.

For further details, click on the following link - what is forex?

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