The forex market size and depth makes it an attractive trading environment for traders and investors. The liquidity makes it easier for traders to buy or sell currencies. Hence, traders from all different asset classes are turning to the forex market for the tremendous opportunities and wide selection of instruments offered through the respective trading platforms. Instruments include, among others:
At the end of the day it's about price or currency rates that get influenced by certain players, better known as the 'big boys'. These key players include the following:
The government bond buying activities and the fixing of interest rate policies are directly influenced by central banks, which then cause the currency rates to move with the candlesticks showing on your charts as lengthening or shortening.
Private companies and large firms, which are engaged in imports and exports, conduct forex transactions to pay for goods and services. These companies may also trade forex to hedge the risk associated with the conversions and translations of foreign currency.
Retail traders consist of the smallest segment of the larger foreign exchange market since it includes individuals like you and me who speculate the direction or strength/weakness of one currency against the other. However, this segment has developed with the advent of dedicated electronic trading platforms like the MT4 and internet, which have allowed individuals to access the global currency markets with ease and speed.
Apart from central banks, portfolio managers, pooled funds, and hedge funds are made up of currency traders for large accounts, such as pension funds and endowments. For example, investment or hedge fund managers possessing international portfolios usually purchase and sell currencies to trade foreign securities, and they may also make speculative forex trades.
Geopolitical analysis revolves around studying foreign policy in order to explain and predict international political behavior through geographical variables. The forex market correlates to the economy of every country respectively since it's a highly interconnected marketplace. Thus, it is extremely sensitive to geopolitical events that can cause an immediate effect on the prevailing currency rates.