The currency trading market has risen in popularity in recent years due to more understanding from the investors. The advances in internet technology have also made it possible for retail investors to participate in the largest market in the world with a daily trade volume of over $4 trillion. However, many skeptics have continued to question how currency trading operates and the safety of investors’ money as it doesn’t have one body governing it. To avoid falling prey to such claims as an investor, you need to arm yourself with ample information and the first step would be to understand exactly who is involved in currency trading and why.

The trading options for currencies are either spot transactions which are short term or forward transactions for long term investors. Currency trading is based on pairs of popular currencies as the investors speculate on price movement and get points which translate into profit returns on their investments. With a trading period of 24 hours and touching all corners of the globe, currency trading has become a phenomenon even among small scale investors without much money.

The banks are the first type of traders who you will find in currency trading. For a long time, forex had been dominated by banks all over the world and it is only with the advent of online currency trading that small investors have started putting their money here. The banks mostly involve themselves in interbank trading where banks continuously trade currency with each other mostly through electronic means. The banks have forex bureaus where they engage in their own speculative currency trading while also assisting their clients with the same. With most of the other banking services shrinking, currency which is needed all over the world has become a key money minting avenue for banks.

Individual investors today also form a considerable part of the currency trading market. However, the volumes they control compared to other players are low and their numbers have also not risen either due to skepticism or lack of information on the forex market. The individual investors have to be knowledgeable on many issues such as policy expectations, inflation rates, interest rate parity to ensure their speculation pays of as their volumes can’t cover losses the way other major players can.

Multinationals and other corporate bodies are another dominant group in the currency trading market. The fact that their services are international means they need currency at the best exchange rates and that’s why they have to engage in currency trading. These companies are always involved in large money transactions and to hedge the risk involved in foreign currency translations, they have to trade or else risk losses.

Another key player is the central banks. In almost all countries, the interest rate policies of central banks will influence the currency rates and hence, they are known as the forex fixers. The open trade operations cannot be possible without the involvement of the central bank as a regulator and in some cases; they have to intervene by either mopping the excess foreign currency or releasing some. This involves currency trading and makes them the most important player here. There it is, there is no need for jitters, it is a purely clean market but you need trade wisely.

Imogen Snodgrass is the author of this article on Forex. Find more information on Forex trading here.