Banks

Banks of all sizes trade currency with each other and through electronic networks and the greatest volume of currency trade happens between banks. Big banks account for a large volume of total currency trades. They facilitate forex transactions for clients and also undertake speculative trades on their own. They act as dealers for their clients and make a profit by the bid-ask spread rates.

Investment Managers and Hedge Funds

The second major players in the forex market are the Portfolio managers and Hedge funds. Investment managers execute a trade in currencies on behalf of pension funds, endowments, and foundations. They buy and sell currencies to trade in foreign securities. They also engage in speculative forex trades. Some hedge funds also execute speculative currency trades as part of their investment strategy.

Corporates

Firms who are in the import and export business, engage in forex transactions to pay for goods and services. For example, when a German solar panel producer imports components from the US and sells their finished goods in China, after the execution of the sale, Chinese currency Yuan has to be converted to Euros and the German firm has to exchange the Euros to dollars for the purchase of the components from U S. Further, hedging against currency risk can add a level of safety to offshore investments. In this example, the German has to purchase US dollars in the market or enter into an agreement to swap currency for getting dollars well in advance of purchasing components from the American company to reduce foreign currency exposure risk.

Individual Investors

When compared to banks and other financial institutions, retail investors account only for a very low volume of trade. However, forex trading is gaining in popularity. They trade in a currency based on a combination of fundamentals and technical factors such as interest rate parity, expectations from monetary policy, inflation rates, and also technical indicators, support, resistance, price patterns, etc.