Forex major market participants

Major forex market participants are the reason why the forex market is gigantic. Traders  conduct their transactions Over The Counter and  the market is open 24/5 a day.

major forex market participants

In the forex market, traders determine who they want to trade with depending on the trading conditions and attractiveness of prices.

This has attracted a large number of people from different regions to participate in the global trading.

The FX market is the most highly liquid in the global market because it has many market participants who place their trades daily for a profit.

Electronic trading and internet made it easy for individuals to participate in trading alongside the big banks and organizations.

Like we mentioned previously, The main forex market participants/ players are;

  1. Inter-Banks
  2. Central banks & the governments
  3. Big Corporations
  4. Individual investors known as speculators.

We shall now get in details and see  how each of these contribute to the market and their trading mechanism.

Inter banks – Major forex market participants

These are the market makers in the market.  They are sometimes called market dealers.

The inter banks quote both the buy and the sell price of financial instruments hoping to make a profit on the bid-offer spread.

The greatest volume of currency is traded in the inter-bank market through the electronic network.

There are hundreds of banks participating in this Forex network. They interact and trade directly with one another using the Electronic Networks; the Reuters Dealing 3000-Spot Matching and Electronic Brokering Services (EBS).

Whether big or small scale, banks participate in the currency markets not only to offset their own foreign exchange risk and that of their clients, but also to increase wealth of their stock holders. 

They facilitate transactions for clients and at the same time speculate trades from their own desks. 

Each bank, has a dealing desk organised differently responsible for order execution, market making and risk management. They also make profits trading currency directly through hedging.

Some of the banks actively trading in the forex market are: Barclays capital, Deutsche bank, Citigroup, UBS. Royal bank of Scotland, HSBC, Merrill Lynch, JP Morgan Chase, ABN Amro, and Morgan Stanley, 

 Central banks and government

The country’s Central bank and the Government play are also a major forex participants.

They greatly affect the forex market through setting of policies that can increase or decrease the value of the country’s currency.

The central banks monitor the amount of money in circulation. It imposes either the expansionary or the contractionary monetary policy to regulate inflation and achieve its objectives.

The other ways the central banks intervenes in the market are increasing/cutting rates. These Rates include;

  1. Interest rates
  2. bank reserve rates
  3. Financial security rates
  4. Bond rates.

Corporations – Forex market participants

These are the big companies that buy and sell their currencies with the aim of running their business globally.

They change their local currencies when they are on travels or purchasing goods from foreign countries which involves them in the forex market.

This class of forex market participants are mainly exporters and importers.

They don’t only stop at exchanging money for trade but also use the financial market to hedge their operations against any risks.

They use the financial markets to offset risks and hedge their operations.

As a result, to protect themselves against these losses, these traders take opposite positions in the market. If there is an unfavorable movement in their original position, it is offset by an opposite movement in their hedged positions.

Individual investors/speculators

This is You and I in the market.

The speculators and individual traders carry on trade through a broker on the platform. Their aim is to earn from making predictions about the future direction of the market.

They only buy and sell currencies with the hope of making a profit.

Speculators usually do not holds trades for a very long time because they are always limited by the size of their accounts. Most speculators have accounts as small as $100.

They are short term traders who hold trades for weeks, days, minutes or even seconds.

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