Lesson 2: The Benefits of Trading Forex and Market Participants

Forex Market Participants

Consumers and Travelers

  • Consumers may purchase goods in a foreign country or via the internet with their credit card.
  • The amount consumers pay in the foreign currency will be converted to their home currency on their credit card statement.
  • Travelers must go to a bank or currency exchange bureau to convert one currency (their "home" currency) into another (the "destination" currency) when using cash to pay for goods and services in a foreign country.
  • Travelers need to be aware of exchange rates to ensure they receive a fair deal.

Businesses

  • Businesses often need to convert currencies when they conduct trade outside their home country.
  • Large companies need to convert huge amounts of currency; a multinational company such as General Electric (GE) for instance, converts tens of billions of dollars each year.

Investors and Speculators

  • Investors and speculators require currency exchange whenever they deal in any foreign investment, be it equities, bonds, bank deposits, or real estate.
  • Investors and speculators also trade currencies in an attempt to benefit from movements in the currency exchange markets.

Commercial and Investment Banks

  • Commercial and investment banks trade currencies as a service to their commercial banking, deposit, and lending customers.
  • These institutions also participate in the currency market for hedging and speculative purposes.

Governments and Central Banks

  • Governments and central banks trade currencies to improve economic conditions or to intervene in an attempt to adjust economic or financial imbalances.
  • Because they are non-profit, governments and central banks do not trade with the intention of earning a profit, but because they tend to trade on a long-term basis, it is not unusual for some trades to earn revenue.

The Commodity Futures Trading Commission (CFTC) limits leverage available to retail forex traders in the United States to 50:1 on major currency pairs and 20:1 for all others. OANDA Asia Pacific offers maximum leverage of 50:1 on FX products and limits to leverage offered on CFDs apply. Maximum leverage for OANDA Canada clients is determined by IIROC and is subject to change. For more information refer to our regulatory and financial compliance section.

This is for general information purposes only - Examples shown are for illustrative purposes and may not reflect current prices from OANDA. It is not investment advice or an inducement to trade. Past history is not an indication of future performance.

Trading FX and/or CFDs on margin is high risk and not suitable for everyone. Losses can exceed investment.