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Banks
A large part of FX turnover is from
banks. Large banks can literally trade billions
of dollars daily. This can take the form of a service
to their customers or they themselves speculate
on the FX market.
Hedge Funds
As we know the FX market can be extremely
liquid which is why it can be desirable to trade.
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Hedge Funds have increasingly allocated portions
of their portfolios to speculate on the FX market.
Another advantage Hedge Funds can utilize is a much
higher degree of leverage than would typically be
found in the equity markets.
Corporate Businesses
The FX market mainstay is that of
international trade. Many companies have to import
or exports goods to different countries all around
the world. Payment for these goods and services
may be made and received in different currencies.
Many billions of dollars are exchanges daily to
facilitate trade. The timing of those transactions
can dramatically affect a company's balance sheet.
The Man In The Street
Although you may not think it, the
man in the street also plays a part in toady's FX
world. Every time he goes on holiday overseas he
normally need to purchase that country's currency
and again change it back into his own currency once
he returns. Unwittingly he is in fact trading currencies.
He may also purchase goods and services
whilst overseas and his credit card company has
to convert those sales back into his base currency
in order to charge him.
Speculators And Investors
We shall differentiate speculator
from investors here with the definition that an
investor has a much longer time horizon in which
he expects his investment to yield a profit. Regardless
of the difference both speculators and investors
will approach the FX market to exploit the movement
in currency pairs.
They both will have their reason for
believing a particular currency will perform better
or worse as the case may be and will buy or sell
accordingly.
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They may decide that the Euro will
appreciate against the US Dollar and take what is
called a long position in Euro. If the Euro does
in fact gain ground against the US Dollar they will
have made a profit.
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