Why the forex market even exists
Forex exists because businesses and governments need to move money across borders. A Cebu exporter paid in US dollars still needs pesos to pay staff. A central bank defending its currency buys or sell
If you went looking for the reason forex exists, the answer might surprise you: it's not to make traders money. It's to make global commerce possible. Speculation is a side effect.
The original purpose
Forex exists for one simple reason: businesses and governments need to exchange one currency for another to do their work. Consider:
- A Cebu-based BPO gets paid in US dollars but pays its employees in Philippine pesos.
- A German car company selling in Japan earns yen. Moving profits back to Germany is a forex transaction.
- An OFW in Saudi Arabia wiring money home to their family in Ilocos does forex too.
- The Bangko Sentral ng Pilipinas buying or selling pesos to manage the exchange rate — a forex transaction at a scale that dwarfs everyone else.
These transactions are not optional.
Speculation came later
In the 1970s, when Bretton Woods collapsed and major currencies started floating freely, a second layer appeared: speculators — people and institutions betting on where prices would move. Today speculation is roughly 60-80% of daily volume.
But notice the ordering. The commercial flow came first.
Why the order matters for you
When the BSP raises rates, the peso moves — not because speculators decided so, but because interest-rate differentials change the fundamentals for every bank, exporter, and corporate treasurer who has to convert currency.
When an OFW remittance surge hits during the Christmas season, the peso strengthens. That's not sentiment. That's actual supply and demand from real money crossing borders.
The retail trader's place
As a retail trader, you're a guest. You didn't build the plumbing. That humility is useful. It means you stop trying to predict the market's mood and start paying attention to the forces that actually move it: central bank policy, trade balances, employment reports, geopolitical risk.
The market doesn't owe you anything. It was never built for you. But if you understand who it was built for and why they're moving money, you can start to read the flow instead of fighting it.
Next: Day 3 — What is a currency pair?