Now that you have a better understanding of the forex market’s broad structure, let’s look at who these people on the ladder are.
It is critical that you comprehend the characteristics of the spot forex market as well as the major forex market participants.
This was a game that only the “big guys” could play until the late 1990s.
You could only trade if you had ten to fifty million dollars to begin with, which was the first criterion. Isn’t it chump change?
The currency exchange market was designed for bankers and major institutions, not for us “small people.”
Online forex brokers may now provide trading accounts to “retail” traders like us, thanks to the growth of the internet.
Without further ado, here are the top participants in the forex market:
1. Super banks
Because the forex spot market is decentralized, the exchange rates are set by the world’s top banks.
They are usually the ones that establish the bid/ask spread that we all adore based on supply and demand for currencies (or hate).
The interbank market, which consists of these huge banks, handles a staggering volume of FX transactions each day for both their clients and themselves.
“Flow monsters” are what they’re called.
Volume and grabbing their portion of the currency trading flow is the name of the game for these flow monsters.
Citi, JPMorgan, UBS, Barclays, Deutsche Bank, Goldman Sachs, HSBC, and Bank of America are just a few of these flow monsters.
2. Commercial Enterprises of Significant Size
Companies participate in the foreign exchange market to do business.
When acquiring electrical parts from Japan for its goods, Apple, for example, must first convert its US dollars for Japanese yen.
This sort of market player often works with commercial banks for their transactions since the amount they trade is significantly less than those in the interbank market.
Currency exchange rate changes can also be caused by mergers and acquisitions (M&A) between major corporations.
A lot of currency talks occurs in international cross-border M&As, which may change prices around.
3. Governments and central banks.
Governments and central banks participate in the currency market on a regular basis, including the European Central Bank, the Bank of England, and the Federal Reserve.
National governments, like businesses, use the forex market to do business, make international trade payments, and manage their foreign exchange reserves.
Central banks, on the other hand, have an impact on the currency market when they modify interest rates to manage inflation.
They can influence currency valuation by doing so.
There are other times when central banks engage in the currency market, either directly or indirectly, to realign exchange values.
When central banks believe their currency is overvalued or undervalued, they engage in major sell/buy operations to modify exchange rates.
4. The Speculators.
The act of buying and holding foreign currency in the hopes of selling it at a better exchange rate in the future is known as currency speculating.
Those who acquire currencies to fund a foreign venture or pay for imported goods or services are not doing so.
“I’m in it for the win!”
This is most likely the speculators’ motto.
Buying and selling currencies with the intention of generating a profit is forex speculation.
Speculators are interested in price changes.
It’s termed speculation because no one can predict whether the price of a currency pair will rise or fall.
Before making a transaction, traders evaluate the likelihood of either event.
Speculators as forex market participants account for about 90% of all trading volume. They come in various forms and sizes.
Some have deep pockets, while others are skint, but they all trade forex for the same reason: to make a lot of money.
You could wind up joining this crowd after graduating from the School of Beo Forex.
Of course, how can you be one of the cool kids if you have no idea what you’re doing with your money?