Oneof the most important components of a currency trader’s success is the abilityto analyze market changes and predict which factors will affect the exchangerate and how. It is much more difficult to carry out fundamental analysis thanany other, since the same factors have different effects on the market underdifferent conditions.
FOREX Market Participants
The main group of participants in the international FOREX market is commercial banks. They conduct the bulk of foreign exchange transactions at their own expense and on behalf of clients. Other participants of the foreign exchange market hold their accounts in commercial banks and send them applications for the purchase and sale of foreign currency for their own needs (conversion operations), and they are credited or vice versa, keep their deposits in banks (deposit and credit operations). Banks, being specialized organizations, accumulate market needs (supply and demand) through operations with customers and, if they are not able to satisfy these needs themselves, meet them through other banks. Therefore, FOREX, in fact, is not an exchange. In the strict sense, it is a market for interbank transactions. Commercial banks also conduct speculative operations at their own expense. In avatrade trustpilot review this role played by the banks are mentioned.
Firms engaged in foreign trade operations. Firms engaged in import operations impose a demand for foreign currency (for the purchase of goods) and the corresponding offer of national currency. Companies engaged in export operations create a supply of foreign currency (obtained from the sale of goods) and the corresponding demand for national currency necessary for wages, taxes and other costs. In addition, both of them place free currency balances on their accounts as deposits or securities, or attract loans in various currencies depending on interest rates and their own expectations. As a rule, all these operations are done through commercial banks.
Funds and companies making foreign investments
International investment funds, as well as large commercial corporations operating abroad, manage their own securities portfolio (for example, government bonds and private companies) nominated in various currencies or hold large deposits in commercial banks for the purpose of making a profit from such investments.
The functions of central banks include maintaining smooth fluctuations in the national currency, managing reserves in foreign currency, regulating refinancing rates and maintaining the liquidity of the national market.
Brokerage companies are engaged in mixing the buyer and seller of currency in the event that between them there are no stable contracting agreements. For their intermediation, brokerage firms charge a brokerage commission, usually as a percentage of the transaction amount.
Individuals carry out a wide range of conversion and arbitrage operations, impose a demand for currency for the purposes of tourism, the purchase of goods abroad, the conversion of wages, etc., and also conduct speculative operations through brokering brokers.
Factors affecting the price of a currency
In general, fundamental analysis identifies four groups of factors that directly affect the market:
- rumors and expectations
- Force Majeure
Economic group of factors
The economic group of factors and its influence on the currency market is based on the axiom that any currency is a derivative of a country’s economic development and its value can be regulated by means of certain economic measures. Every day, there are macroeconomic indicators that can be used to characterize the state of the economy of a particular country with varying degrees of accuracy.