- Commercial Banks
- Central Banks
- Currency Exchanges
- Investment Funds
- Brokerage Houses
Participants of this market are, first of all, large commercial banks through which
the basic operations under the instruction of exporters and importers, investment
institutes, insurance and pension funds, hedge and individual investors are carried out.
These banks operate in their own interest as well, based on their daily operations and liquid
deposits, they may trade forex in the billions of dollars. Some of these banks use forex
trading as a basic tenet in their profitability, speculating in currency.
Unlike active participants, passive participants of the market cannot create their
own quotations and make purchases or sales of currency under the prices which are offered
by active participants of the market. Passive participants of the market
usually have the following purposes: payment of export-import contracts, foreign industrial
investments, opening of branches abroad or creation of joint ventures, tourism,
hedging of currency risks, etc.
The central banks of countries live on FOREX, as a rule, not with the purpose
of extraction of profits, but with the purpose of stabilizing or correcting
an existing rate of national currency as this renders significant influence on
a condition of a national economy. The central banks also live on the currency
market through commercial banks. Though profiting through trading is not the basic purpose of these
banks, unprofitable operations negatively affect the economy, therefore interventions
of the central banks are usually carried out through commercial banks
concurrently. The central banks of the different countries can carry out and the joint
coordinated interventions.
As active participants make operations with the huge sums totaling millions dollars,
passive participants can use margin trading with the help of a small insurance deposit.
They receive an opportunity temporarily to operate with the capital, equal to one hundred
times more than their deposit. This type of trading allows allows the investor to take part in the advantages
of the currency market. The investors may start with a small amount of capital and use leverage to receive
significant profit (according to leverage system).
As we already mentioned, the change of exchange rates can lead to huge Profit/losses
for export-import transactions. Attempts to be protected from currency risks force
exporters and importers to apply for hedging those or other tools of the currency
market: forward transactions, options, futures, etc. Moreover, even business which
is not connected to export-import transactions, can have losses due to the change of exchange
rates. Therefore, studying FOREX - an obligatory component of any successful business.