Speculators are market
participants who are involved in the market for one reason only: to make money.
In contrast to hedgers, who have some form of existing currency market risk, speculators
have no currency risk until they enter the market. Hedgers enter the market to neutralize
or reduce risk. A Speculators embrace risk taking as a means of profiting from
long-term or short-term price movements.
Speculators (specs for short) are what really make a market efficient. They add
liquidity to the market by bringing their views and, most important, their capital
into the market. That liquidity is what smoother out price movements, keeps
trading spreads narrow, and allows a market to expand.
In the forex market, speculators
are running the show. Conventional market estimates are that upwards of 90
percent of daily trading volume is speculative in nature. lf you're trading
currencies for your own account, welcome to the club. lf you’re trading
currencies to hedge a financial risk, you can thank the specs for giving you a
liquid market and reducing your transaction costs.
Speculators come in all types and
sizes and pursue all different manner of trading strategies. In this section,
we take a look at some of the main types of speculators to give you an idea of
who they are and how they go about their business. Along the way, you may pick
up some ideas to improve your own approach to the market. At the minimum, we
hope this information will allow you to better understand market commentaries
about who‘s buying and who's selling.
