Governments, financial institutions, banks, investment bankers, investment funds, authorised dealers, companies, and authorised individuals or firms participate in this market.

Every country is trading with other countries. Therefore they have to buy and sell in particular currencies. Depending upon the level of trading, that is importing and exporting, they require the currency of the country imported from. If they don’t have it, they have to buy it from other countries which have it. That’s the crux of the market of forex trade!

Since countries are trading in this market, the sum is greater than than all the investments put together in all stock markets put together. And it happens daily, minute to minute, hour on the hour, throughout every day and night, all the year around.

How does this affect you? Let’s assume you are visiting ‘x’ country. You find that for your currency, you can get, say, 5 to your currency, cutting the commission off. However, by the time you get there, you find that due to a change in your country’s position, now you are able to get only ’4′ for your currency! That impacts you doesn’t it. That’s because the forex market devalued that country’s currency due to various internal forces in that country which made the forex market nervous about that currency. It could be simple politics, or maybe a default in repaying a oan of currency they took in the market.

The largest players in this market are obviously those who are cash rich, and need to put that cash to work to earn more than what they have to pay for it to be parked with them. Therefore Banks, investment institutions constitute the largest players in the market. After them come many companies who have substantial markets overseas, and need to keep their balance exchange-fluctuations neutral, meaning thereby that they earn by putting their foreign exchange earnings into the market to make more money, and more importantly to take positions, as would not reduce their overseas earnings if the currencies they are holding take a dive. Remember the example of your travelling overseas in an earlier para? Companies are just covering their backs, by heding their foreign currency earnings.

Since there is a demand for forex, it makes sense for banks and other institutions to make use of it. They do so, and make money or lose money. In doing such a business, they are supported by researchers and analysts whose job is to predict in what way will currencies move, based on an ongoing study of each country. You will find in every financial institution and banks, economists and analysts who specialise not only in general subjects, but also in specific industry sectors. They are highly paid, and they hold the key on giving the dealers a range to bid for each currency.

Thus banks in addition to lending out money deposited with them by you to other people at a higher interest rate, also use the spare cash they have to put into the forex market to get an additional income so as to cover the costs of servicing your deposit, maintaining a good and healthy profitability and so on.

Governments too which are flush with foreign exchange also put it in the international market. If they were to push that forex into their own country, then money supply would be such as would create an inflationary situation, meaning too much money chasing too few goods. Thus, they prefer to park their surpluses in the external forex market trade and earn more money. That’s a fine balancing act that the Central Banks of countries have to do.

Abhishek Agarwal
http://www.articlesbase.com/investing-articles/forex-market-trades-learn-how-you-form-part-of-it-703535.html