Who Trades in Foreign Exchange?

Traders in foreign exchange can essentially be separated into two groups, hedgers and speculators.

The Hedgers: These are traders that transact in foreign exchange for the delivery of real funds. These include Governments, companies - exporters and importers, as well as some investors that have foreign exchange exposures or risk.

These groups will use the foreign exchange market for two purposes; to hedge (insure) themselves against detrimental movements in currency prices, and the actual purchase of foreign currency to pay for foreign goods and services (importers), or alternately, sale of foreign currency that was received by supplying foreign goods or services (exporters). Hedgers are the core of all foreign exchange trading; however, with the expansion of the market, it only makes up approximately 15% of the actual market.

The Speculators: These are groups which range from banks, funds, corporations and individuals – they create artificial rate exposure without any intention of actually receiving the currencies bought or delivering the currencies sold. They are simply looking to profit from the natural fluctuations in the value of the currencies within the Forex market. It is estimated that approximately 85% of the market is speculative. For every one dollar traded by a hedger there are six dollars traded by a speculator.