Five categories of associates make up the foreign exchange market, purchasers, corporations, speculators, investors, investment banks, commercial banks and central banks. These groups have varying roles to play in the foreign exchange market, but all trade currencies at varying levels.
Purchasers
Purchasers within the foreign exchange market often consist of members of the public, including holidaymakers, immigrants and visitors. These groups of people will need to exchange currency when they travel in order to purchase goods and services at their destination. In addition, those belonging to the purchasers group buy and sell in accordance with the current exchange rate and make up a considerable proportion of the foreign exchange market.
Corporations, Investors & Speculators
Corporations are important within the market, because they are involved in the importation and exportation of goods and services and in doing so they need to exchange currency to make or receive payments. Foreign exchange investors and speculators require currencies to purchase and sell tools for investment such as shares, bonds, bank deposits or property.
Banks
Large commercial and investment banks buy and sell currencies at exchange rates they declare through foreign exchange dealers. Commercial banks deal with both customers and interbank’s, generating profits utilising what is known as the bid price. The bid price is the exchange rate the buyer is willing to buy at. The offer price, on the other hand, is the rate at which the seller is willing to deal at. The difference between these prices is called the bid-offer spread. Profits are created through the speculation of the rise or fall within the exchange rate. Central banks act as banks for governments who trade currencies, not just for making profits, but also to facilitate government monetary policies and assist with fluctuations in the value of currency from a particular country.