There are two main groups that trade
currencies. About 5 - 10 percent of daily volume is from companies and
governments that buy or sell products and services in a foreign country and must
subsequently convert profits made in foreign currencies into their own domestic
currency in the course of doing business. This is primarily hedging activity.
The other 90 - 95 percent consists of investors trading for profit, or
speculation. Speculators range from large banks trading 10,000,000 million
currency units or more and the home-based operator trading perhaps 10,000 units
or less. Today, importers and exporters, international portfolio managers,
multinational corporations, speculators, day traders, long-term holders, and
hedge funds all use the FOREX market to pay for goods and services, to transact
in financial assets, or to reduce the risk of currency movements by hedging
their exposure in other markets. The speculator trades to make a profit by
purchasing one currency and simultaneously selling another. The hedger trades to
protect his or her margin on an international sale from adverse currency
fluctuations. The hedger has an intrinsic interest in one side of the market or
the other. The speculator does not.
