Who Controls the Forex Market? The Impact of Global Economies on Currencies
Many people think of the Forex Market when it comes to investing in new opportunities to make a side income. However, there is still one question that both beginners and expert traders have in mind: Who controls it? Read on and find the answer here!
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What Is the Forex Market?
The Forex market, also known as foreign exchange, is a network of sellers and buyers who set a specific price for a transaction and transfer currency between each other.
In different terms, it is what central banks, individuals, and companies use to convert one currency into another.
Many people rely on Forex exchange for practical purposes. However, most of the conversion occurs because the individuals want to make a profit.
Since the Forex market allows people to convert a lot of currency daily, the market and the assets can become extremely volatile, which is even more attractive for some people. Yes, it increases risks, but it also allows some individuals to earn more.
Moreover, thanks to the market's decentralized nature, people can buy and sell currencies at any time of the day.
Who Controls the Forex Market?
Many traders have one question in mind when they start learning about the Forex market: who controls it?
It's a clever question, and it's common among beginners. The truth is that four global networks control most of the market: banks from London, Sydney, New York, and Tokyo.
Firms and commercial companies own and control these banks. However, there are other actors that play a key role here.
Main Pillars that Control the Forex Market
If you know about Forex, you're probably aware of this fact: It's the most prominent trading market in the world. Therefore, no single company or person can run it.
Instead, four different institutions act as pillars and control the Forex market. These are central banks and the government, hedge funds and investment managers, multinational corporations, and individual investors, also known as operators.
Central banks represent the nation's government, which is why they're responsible for fixing the price of their currency in the market.
Moreover, these entities' primary job is to grasp internal exchange stocks when managing international trading payments.
These organizations also take care of other basic functions. Therefore, their impact on the Forex market is significant.
Central banks are also responsible for adapting interest rates, which means they handle rising prices. Overall, these entities' job is to control exchange rates. Therefore, if they're too low or high, they'll step in and intervene by buying or selling at large scales.
Any action that a central bank performs is supposed to increase competitiveness or stabilize a nation's economy. Sometimes, these entities may do things that weaken their own currency but improve other processes, such as exports.
The second most important collection of players in the Forex market is hedge funds and investment managers. They trade currencies for large accounts, for instance, endowments, pension funds, and foundations.
If an investment manager has an international portfolio, they'll have to sell and buy currencies to trade foreign securities. They can also make speculative trades, which is what hedge funds usually do.
On the other hand, multinational corporations are firms that engage in exporting and importing Forex transactions, which allow them to pay for goods and services.
Companies usually trade Forex to manage the risk associated with foreign currencies' translation. Furthermore, when these organizations hedge against currency risk, they add safety to other types of investments.
Unlike companies and financial institutions, the number of individual investors is low. However, it's becoming more popular every day.
Investors base their financial decisions on several factors, including technical indicators, resistance, support, and price patterns.
The Importance of the Forex Market
There's an essential thing to consider when learning about Forex: It has shaped business and will continue to do so in years to come.
Forex is the resulting collaboration between companies, institutions, and individuals worldwide.
When they buy and sell currencies, they impact everyone other people's economy since this platform impacts businesses across the globe.
Determinants of Currency Value in the Forex Market
The primary determinants behind the currency value are demand and supply. However, other factors could influence this, too, such as printing money, foreign goods' prices, the economy's current state, a country's secretiveness, its national debt, and political conditions.
Money printing, for instance, is one of the most dangerous practices a country can engage in. It will undoubtedly result in its currency losing value. The same is true in the opposite scenario: when there's only a small amount of the currency circulating, its value increases.
However, the economy's state can impact the currency's value too. When it happens, it often involves other things. Consumer spending, unemployment rate, the potential for business expansion, and the potential for economic growth belong to this category.
Politics can also impact a currency's value in the Forex market. In this case, it depends on the degree to which political affairs mingle with economic ones. If there is corruption or people engage in illegal economic practices, its currency's value could drop.
Factors such as terrorist attacks, a president's popularity, and the housing market can influence the currency's value, too. All these affect people's possibilities of buying, selling, or simply living their normal lives and contributing to the country's economic flow.
Currency Trading Practices in the Forex Market
Each investor has their own way of doing things, but many successful people have recommended specific practices to engage in when getting started with Forex.
Firstly, the investor must consider different trading styles and methodologies and choose one. However, it's completely up to the person, as each individual has their own way of thinking and behaving.
If you can't go to sleep with an open position, for instance, day trading could be for you.
Alternatively, if you think some positions will benefit you in a few months, you may be a position trader.
Overall, the basics of these practices require the person to know what they want and have some idea of how they'll get it. Trading in Forex will be a million times more challenging if you don't have clear goals and at least some ideas to achieve them.
Choosing a reputable platform and a good broker is also crucial when trading in the Forex market. In addition, keeping a consistent method and only tweaking the details is essential, particularly if you want to strengthen your strategy and build something long-lasting.
The last practices that investors must consider if they trade in the Forex market are performing weekly analyses and keeping a record. It's hard to write down everything you do, but doing so will help you stay organized and on top of your to-dos.
Any practice you engage in must help you achieve your goals. Therefore, it's crucial that you make intelligent decisions when organizing what you'll handle.
Conclusion
Becoming a refined Forex trader and understanding all the intricacies of the market is also challenging. However, many people have done it for years.
Moreover, nowadays, there's more and more information available to comprehend what these practices entail.
