Hedge Funds | Foreign Exchange On The World Financial Stage

Foreign exchange trading is always happening, and its reach spans the globe. For example, as the currency markets open at the beginning of the day on European continent, the Forex markets in Asia to the east are closing for the trading day. After Europe completes its trading day, the countries in the north, central and southern Americas are opening for their turn at the Forex market. The markets in Japan, China, Australia, including all the regional markets in that part of the world, will be soon awake to a new trading day as the Americas close theirs. This cycle of trading activity continues in sequence around the world, creating an active market.

Who engages in Forex trading?

The major players in foreign exchange markets are banks, large commercial enterprises, national central banks, hedge funds, investment management firms, retail traders, and individual investors. National central banks and hedge funds are the two most influential participants in the foreign currency market. Central banks trade on the market for a variety of reasons. Two examples are to stabilize their own currencies, or to synchronize their interest rates with other national interest rates. Central banks also trade on the foreign currency market to manipulate their currency in order to manage economic influences like inflation, and to control the supply of money.

Hedge funds represent the more speculative end of the foreign exchange trading spectrum. The trading done by hedge funds in the international currency exchanges often takes advantage of the environment where regulation is scarce. Hedge funds can control significant blocks of a nation's securities, and can actually undermine the attempts of national central banks to stabilize a currency if recent market and world events make such adjustments necessary.