Work of Speculators in Forex Trading

Work Speculators in Forex Market

What is a Forex speculator?

Today, in our modern conditions, almost all financial transactions conducted in the market are speculative by their nature, and nobody can signal nothing abnormal or wrong in it. One of the most illustrating indexes of forex markets' globalization is their huge daily volume of exchange transactions. Analyzing only the 10 major financial centers it has increased from 206 billion dollars in 1986 to 967 billion dollars dealt in 1992.

According to the IMF, on the whole the daily volume is over 1 trillion dollars, and on some days it reaches up to 3 trillions. It would be enough to indicate that the combined volume of gold and foreign exchange reserves of all developed countries was only 555.2 billion dollars in 1992, which, as you can see, is two times less than a the normal daily volume of forex market transactions.

Nowadays, some analysts have calculated that the volume of exchange transactions is 40 times bigger that the daily volume of foreign trade transactions.

Therefore, we realize that most of the deals are actually caused not by a commercial necessity, but only by financial reasons. And in general we can say that a financial transaction is always caused by the fact that money is looking for some profitable usage.

The international forex trading system that operates in the world at the moment develops among people willing to deal with exchange and financial transactions: the so-called speculative psychology.

In the world where exchange forex rates normally fluctuate for just some per cent every week, where currencies, that are named as stable can lose up to 20 to 30 per cent of their cost during a few months, it is absolutely understandable that a lot of managers of funds, when trying to compensate for their inevitable losses, have to perform speculative operations.

A most frequent situation occurs when a reasonable owner of dollars has to get rid of them in a very short time and exchange them for Euro every time he knows that the expected fall of the dollar against Euro is going to surpass the difference between the profit from American notes and the profit from the respective German notes.

For instance, if by some means he expects that in the coming months the dollar is going to fall against the Euro by 6%, and the profit from American notes is 6 per cent bigger than the profit from German notes, this speculator will probably decide to keep his dollar, but when the gap in the interest rates is less than the expected fall of the rate, the "running away from the dollar" starts immediately.

Who are these speculators? Our analysis shows that the most powerful speculators acting today in the forex market are institutional investors. Among them we can signal out, first of all, official state institutions, and in second place, private financial and other institutions.

According to the report of the "Group of Ten", state investors in Europe and Japan are keeping about 20 per cent of their assets in the form of foreign securities (in the USA they have only 7.5 per cent). However, the main feature brought by the 1980s was the growing international activity of private financial institutions: pension funds, insurance companies, and mutual funds.

The Globalization of international financial markets is an objective process, that reflects the growing degree of economic relations in the world. It promotes a more effective distribution of financial resources.

Major world exchange markets

  • American Stock Exchange
  • Sao Paulo Stock Exchange
  • Chicago Board of Trade
  • Chicago Stock Exchange
  • Chicago Mercantile Exchange

Commodities on the Web

  • London International Financial Futures and Options Exchange
  • London Stock Exchange
  • Nasdaq
  • New York Mercantile Exchange
  • New York Stock Exchange
  • la Bourse de Paris
  • Singapore Exchange
  • Stock Exchange of Thailand
  • Tokyo Stock Exchange
  • Toronto Stock Exchange
  • London Stock Exchange
  • Chicago Board Options Exchange CBOE
  • Philadelphia Stock Exchange

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