Learn to Trade Forex | Do You Really Know Your Competitors

Most people who are just beginning to learn to trade forex don't really know who are their "competitors" (yes, trading forex is a cut throat competition, not a friendly game), and like to think of trading forex in the same way that you would trade baseball cards. They say that 95% of all those who enter the forex market will lose, which ultimately means that those 5% (and the brokerage firms who bet against their clients) make out like bandits. Bottom line: if you want to learn to trade forex, you first need to know your competition then you can start to pull together strategies....

So who are your competitors?

The Central Banks- These guys are the banks from every country and most have more than just money at stake here. Unlike you and I, they don't necessarily trade for the same reasons. The central banks main motivation with trading forex is to provide stability to whatever currency they are associated with and thus protect the economic interests of their country.

What they do is buy and sell their own currency, thus affecting the price of the currency. What you can pretty much bet is that if the currency is following a downtrend, the central banks are trading in the opposite direction.

Export and Import Businesses- I got a taste of these kinds of traders from an acquaintance who was bidding on re-building roads in Iraq. Basically what he did was use the forex to pay his suppliers or accept payments in another currency. These corporations are rarely in it for profit. Just like the central banks, these corporations are able to virtually move the market because when they trade, it typically is in the millions of dollars.

Foreign Direct Investors- These guys are not trading in the same sense that you and I would either. Foreign Direct Investors trade for the long term and essentially hold currencies in the same way that a bank would store money in a savings account.

As you probably could imagine, when they do liquidate their position, it could create a pretty good ripple in the market. Just like Central Banks, most of these investors deals with millions of dollars at a time.

The investors above don't actively trade for profit but have their own interests in mind when holding currencies. They also hold the lion's share of currencies in comparison to you and I and even some of the "investment banks" and hedge funds. However, as powerful as they are, they only make up roughly 5% of all the trader's that trade. So, what about the other 95% of forex traders? Well, that brings up to our final investor....

Speculators- Now, I have read in several forex websites that would like to make the claim that trading forex is not gambling. However, just the term "speculator" brings to mind a gambler of sorts, right? Anyway, speculators make up 95% of all currencies traded on any given day and these are your competitors.

They are made up of investment banks, hedge funds, money managers, corporations, and of course, the small fries...the retail traders like you and me.

As you can probably tell from the list, there are still some major players here that make their living making money for their clients. These guys will use advanced charting methods and know a thing or two about how the market moves. And everytime someone like you or me lose some pips, chances are there is some speculator out there that is making money from our loss.

The reason why I bring this up is not to try to persuade you away from Forex trading. I just believe that if you want to learn how to trade forex, you should have a clear understanding of the players involved in the currency markets and how each can affect you. Now will this help you trade better? Probably not. But hopefully, understanding this will help you realize exactly what you are up against when you decide to trade.

Learn to trade forex