Welcome back everybody to a trader’s diary, We are Megan and Madison today we’ll be discussing the different players that are a participating in the foreign exchange market.
As we discussed in our first video, the foreign exchange market is a vast and liquid market.
Probably the most liquid of all the capital markets with 5.
2 Trillion dollars a day worth of currency trades going through it.
Starting from Asia and moving west across the globe closing down in the US and then starting up again nearly immediately.
The Foreign exchange has a lot of big players in it, people who are constantly participating to get that 5.
2 Trillion dollars of flow on a daily basis.
Some of the players are everyday tourists, people who are leaving the United States and going to Europe and needing to sell their dollars and buy Euros to be able to do the normal everyday tourist things.
But additionally there are people who need to hedge their currency exposure because they have corporate offices in a multinational corporation across the globe.
So, if you have a home base in Tokyo but you do business in Canada you will eventually need to sell your Canadian dollars to bring them back to Japanese Yen and to do that you need to participate within a foreign exchange market.
But a foreign exchange market goes well beyond hedging your currency exposure or buying currency you could participate as a tourist in another country.
This is the largest trading market in the world with huge liquidity that allows you to get in and out of positions nearly immediately and there’s some big players who participate.
The largest players are the interbank banks, these are multinational banks who are in and out of that market as dealers every day.
If you’re a big institutional investor and you want a price to exchange one currency for another you’re going to the interbank for your currency trading.
These are players like Bank of America, Deutsche Bank, Citibank, Credit Suisse, some of the largest banks in the world with branch locations all over the world.
They hold hard currency but they participate in the currency flow every single day.
Other players include pension funds and hedge funds who are actually trying to catch the direction of the currency flow along with the interbank.
Now, the interbank sees that flow everyday so not only are they dealers but they’re also trying to catch the direction of a currency move and because they can see the flow of some of the largest pension funds and hedge funds they have an advantage of seeing that particular buyer.
But they’re not the only ones who can do analytics, pension funds and hedge funds try to catch those moves to make money for their investors along with trading companies who are mid-tier players who are constantly looking for the moves as well.
There’s also individual traders like you and me who have developed techniques over the course of years to be able to participate in this market that has such huge flow and catch the direction of an exchange rate on a currency pair that we believe is going to move in a specific direction.
That’s it for today, please join us again for our next entry of the trader’s diary coming soon.