Over $3 trillion dollars is traded every day on the foreign exchange market. This market, also called Forex, exists whenever one currency is traded for another. Big players in this market include large banks, governments, central banks, corporations, currency speculators, and hedge funds.
Top 10 Currencies Traded
- U.S dollar
- Euro
- Japanese yen
- British pound sterling
- Swiss franc
- Australian dollar
- Canadian dollar
- Swedish krona
- Hong Kong dollar
- Norwegian krone
Because of the variety of traders involved and the fact that currencies are traded 24 hours a day except on weekends, the foreign exchange market is unlike any other financial market. Far different from the stock market, where everyone has access to the same prices, the forex market is based on access. The more money someone is trading, the better level of access they have. This is why investment banking firms are usually at the top, usually trading billions of dollars daily.
Top 10 Currency Traders
- Deutsche Bank
- UBS AG
- Citi
- Royal Bank of Scotland
- Barclays Capital
- Bank of America
- HSBC
- Goldman Sachs
- JPMorgan
- Morgan Stanley
The biggest factor that affects forex is the exchange rate. Because the value of currency is completely correlated to supply and demand, the price of one currency in relation to another is constantly shifting. Because supply and demand are influenced by a number of different factors, the foreign exchange market is extremely complex and ever-changing, and could be impacted by almost any social or economic event, worldwide. In most countries, there are little or no restrictions on capital flows, leaving the exchange rates open to adjustments based on their perceived values by the market forces.
According to Wikipedia, hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds’ favor.
Hedge Funds, which have always been known to dabble in exotic investments, were therefore the perfect vehicle to trade in the foreign exchange market. Forex hedge fund managers must have a prolific understand of global economics. As with any hedge fund, the strategy employed in forex hedge funds depends entirely on the style of the manager, as there are many different strategies that may be used. Some popular ones include betting the position of the dollar against other currencies and a strategy where managers borrow in low-yielding currencies, then invest in higher-yielding units.
