These institutions also conduct proprietary trading. Given the size and liquidity of the market, hedge funds have begun to allocate increasing portions or their portfolios towards FX speculation. These funds are primarily attracted to the FX market because the ability to leverage their investments is typically much greater than it would be in the equity markets. International trade is the backbone of the FX market. Companies must convert currencies when they conduct business outside their home country.
Large companies convert huge amounts of currency each year.
The timing of when they convert can have a large affect on their balance sheet and bottom line. Consumers typically come into contact with currency exchange when they travel. Consumers may also purchase foreign goods while shopping in a foreign country or via the Internet with their credit card, in which case they will find that the amount they paid in the foreign currency will have been converted to their home currency on their credit card statement. Day traders are attracted to currency trading because of the size, liquidity and volatility in the FX market. Participation in the FX market by individuals other than high net-worth individuals has been limited in the past.