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y suspect activity in many countries.[where?] While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona.[82] Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.

Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.[83]

In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling, followed by an eventual, larger, collapse. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.

Gregory J. Millman, Around the World ono
National Futures Association (2010). Trading in the Retail Off-Exchange Foreign Currency Market. Chicago, Illinois.
Categories:

References[edit]
Jump up ^ The Economist – Guide to the Financialchang 20amble – International Herald Tribune
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oreign exchange derivative
Money market
Nonfarm payrolls
Tobin tax
World currency

Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors.[80] Also to be considered is the rise in foreign exchange autotrading; algorithmic, or automated, trading has increased from 2% in 2004 up to 45% in 2010.[81]

Currency speculation is considered a highl
Risk aversion[edit]
F

shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The options market is the deepest, largest and most liquid market for options of any kind in the world.

Speculation[edit]
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do.[78] Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.[79]

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Option[edit]
Main article: Foreign exchange option
A foreign exchange option (commonly

ms of their obligation, but differ from forward contracts in the way they are traded. They are commonly used by MNCs to hedge their currency positions. In addition they are traded by speculators who hope to capitalize on their expectations of exchange rate movements.

ited States JPMorgan 5.55%
7 United States Bank of America Merrill Lynch 4.38%
8 United Kingdom Royal Bank of Scotland 3.25%
9 France BNP Paribas 3.10%
10 United States Goldman Sachs 2.53%
Foreign exch

In April 2013, for the first time, Singapore surpassed Japan in average daily foreign-exchange trading volume with $383 billion per day. So the rank became: the United Kingdom (41%), the United States (19%), Singapore (5.7)%, Japan (5.6%) and Hong Kong (4.1%).[60]

Turnover of exchange-traded foreign exchange futures and options have grown rapidly in recent years, reaching $166 billion in April 2010 (double the turnover recorded in April 2007). Exchange-traded currency derivatives represent 4% of OTC foreign exchange turnover. Foreign exchange futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.

Most developed countries permit the trading of derivative products (like futures and options on futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Some governments of emerging economies do not allow foreign exchange derivative products on their exchanges because they have capital controls. The use of derivatives is growing in many emerging economies.[61] Countries such as Korea, South Africa, and India have established currency futures exchanges, despite having some capital controls.

Top 10 currency traders [62]

ge platform
Market size and liquidity[edit]


Main foreign exchange market turnover, 1988–2007, measured in billions of USD.
The foreign exchange market is the most liquid financial market in the world. Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. The average daily turnover in the global foreign exchange and related markets is continuously growing. According to the 2010 Triennial Central Bank Survey, coordinated by the Bank for International Settlements, average daily turnover was US$3.98 trillion in April 2010 (vs $1.7 trillion in 1998).[4] Of this $3.98 trillion, $1.5 trillion was spot transactions and $2.5 trillion was traded in outright forwards, swaps and other derivatives.

In April 2010, trading in the United Kingdom accounted for 36.7% of the total, making it by far the most important centre for foreign exchange trading. Trading in the United States accounted for 17.9% and Japan accounted for 6.2%.[59]

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es beginning during 1978 [53]) the Bank of China allowed certain domestic "enterprises" to participate in foreign exchange trading.[54] Sometime during the months of 1981 the South Korean government ended forex controls and allowed free trade to occur for the first time. During 1988 the countries government accepted the IMF quota for international trade.[55]

Intervention by European banks especially the Bundesbank influenced the forex market, on February the 27th 1985 particularly.[56] The greatest proportion of all trades world-wide during 1987 were within the United Kingdom, slightly over one quarter, with the U.S. of America the nation with the second most places involved in trading.[57]

During 1991 the republic of Iran changed international agreements with some countries from oil-barter to foreign exchange.[58]

See also: History of Retail foreign exchan

% of overall volume, May 2014
Rank Name Market share
1 United States Citi 16.04%
2 Germany Deutsche Bank 15.67%
3 United Kingdom Barclays Investment Bank