Four Types of Players in the Foreign Exchange Market
The Forex market is full of all sorts of different people who are trying to accomplish all sorts of different things. Some Forex traders are trying to make money, some are trying not to lose money, and some are trying to affect how much money is worth and how it moves around the world.
It is this diverse cast of characters that makes the Forex market one of the most dynamic markets on earth. On the other hand, it is his same cast of characters that can make it difficult to understand why the market is doing what it is doing. That’s why it is important 1 hat you take some time to understand what motivates each group. Because the better you understand what is driving the people who are placing the trades, the more successful you will be.
So let’s take a look at the four types of players in the Forex market.
Hedgers are market participants who look to the Forex market as a place where they can reduce their exposure to risk. This may seem counterintuitive at first—after all, isn’t the Forex market brought with risk? Yes, it can be. But if you are already exposed to foreign exchange risk through international business transactions or for other reasons, the Forex market can be a great place to offset that exposure and thus reduce your risk.
Speculators are the polar opposite of hedgers. While hedgers look to the Forex market as a place to reduce their risk, speculators look to it as a venue where they can take on risk in the hopes of making a profit. As the name suggests, these traders speculate regarding the direction in which they believe a currency pair is going to move and place their trades accordingly—understanding that if they are wrong, they are going to lose money. Unless you are a corporate treasurer and are reading this book on behalf of your company, you are most likely a speculator.
Manipulators are players whose sole purpose for jumping into the Forex market is to manipulate prices. Now, don’t let the negative connotations of the term manipulators overwhelm you. Some market manipulation can be viewed as healthy for the market, depending on what your economic philosophy leanings are.
Facilitators are market participants who are not looking to make money by speculating in the Forex on their own. Rather, facilitators look to make money by enabling hedgers, speculators, and manipulators to place their trades in the Forex market.
Now that you understand the four basic categories that Forex market participants typically fall into, let’s take a look at some of the most important players in the market and see which category, or categories, they fall into.