Who are the major participants of forex market ?

Forex Market Players

  • Commercial and Investment Banks.
  • Central Banks.
  • Businesses and Corporations.
  • Fund Managers, Hedge Funds, and Sovereign Wealth Funds.
  • Internet-based Trading Platforms.
  • Online Retail Broker-Dealers.

Important Notes:

  • The foreign exchange (also known as FX or forex) market is a global marketplace for exchanging national currencies against one another.
  • Market participants use forex to hedge against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios, among several other reasons.
  • Major players in this market tend to be financial institutions like commercial banks, central banks, money managers and hedge funds.
  • Global corporations use forex markets to hedge currency risk from foreign transactions.
  • Individuals (retail traders) are a very small relative portion of all forex volume, and mainly use the market to speculate and day trade.

1. The Super Banks

Since the forex spot market is decentralized, it is the largest banks in the world that determine the exchange rates.

Based on the supply and demand for currencies, they are generally the ones that make the bid/ask spread that we all love (or hate).These large banks, collectively known as the interbank market, take on a ridonkulous amount of forex transactions each day for both their customers and themselves.

They are known as “flow monsters“.

2. Large Commercial Companies

Companies take part in the foreign exchange market for the purpose of doing business.

For instance, Apple must first exchange its U.S. dollars for the Japanese yen when purchasing electronic parts from Japan for its products.Since the volume they trade is much smaller than those in the interbank market, this type of market player typically deals with commercial banks for their transactions.

Mergers and acquisitions (M&A) between large companies can also create currency exchange rate fluctuations.

In international cross-border M&As, a lot of currency conversations happens that could move prices around.

3. Governments and Central Banks

Governments and central banks, such as the European Central Bank, the Bank of England, and the Federal Reserve, are regularly involved in the forex market too.

Just like companies, national governments participate in the forex market for their operations, international trade payments, and handling their foreign exchange reserves.

Meanwhile, central banks affect the forex market when they adjust interest rates to control inflation.By doing this, they can affect currency valuation.

There are also instances when central banks intervene, either directly or verbally, in the forex market when they want to realign exchange rates.

Sometimes, central banks think that their currency is priced too high or too low, so they start massive sell/buy operations to alter exchange rates.

4. The Speculators

Currency speculation is the act of buying and holding foreign currency in the hopes of selling that currency at a higher exchange rate in the future.

This is in contrast to those who buy currencies to finance a foreign investment or to pay for imported products or services.

“In it to win it!”

This is probably the mantra of the speculators.

Speculation in the forex market involves the buying and selling of currencies with the view of making a profit.

Speculators are focused on price fluctuations.It is called speculation because of the uncertainty involved since no one can know for sure whether a currency pair’s price will go up or down.

Traders assess the likelihood of either scenario before placing a trade.

Comprising close to 90% of all trading volume, speculators as forex market players come in all shapes and sizes.

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