Speculators in Forex exchanges fulfill the economic function of lending liquidity to the Forex markets. Speculators do not create risk, they assume it in the hope of making a quick buck. They actively expose themselves to currency risk by buying or selling currencies forward, in order to profit from exchange rate fluctuations. In an inter-bank exchange market, without these risk-takers, it would be difficult, if not impossible, for hedgers to arrive at a consensus with respect to the price because the sellers (or short hedgers) want the highest price, while the buyers (or long hedgers) want the lowest possible price.

    Speculators “buy positions” (go long) when expecting prices to increase, hoping to later make an offsetting sale at a higher price, i.e. at a profit. Speculators “sell positions” (go short) when expecting prices to fall, hoping to later make an offsetting purchase at a lower price, i.e. once more, at a profit.

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