Market Participants

There are four categories of participants in the currency derivatives market. Hedgers use currency futures to protect an existing portfolio (or an anticipated investment) against possible adverse currency movements. Hedgers therefore seek to reduce risk.
Hedgers have a real interest in the underlying currency and use futures as a way of preserving their performance.
Arbitrageurs profit from price differentials of similar products in different markets, e.g. price differentials between the spot exchange rate and futures price.
Investors use currency futures to enhance the long-term performance of a portfolio of assets. Speculators use currency futures in hopes of making a profit on short-term movements in prices.
Speculators therefore seek to enhance risk with the aim of making a profit.
Speculators have no interest in the underlying currency other than taking a view on the future direction of the currency’s price.

A successful and efficient market is made up of a healthy balance of the abovementioned participants.