Who Trades Forex?

7 Important Participants of the Forex Market

As we have seen earlier that the forex trading market has an approximately daily trading value of $5 Trillion, so you might be thinking how come so much cash is changing hands or who are the people participating and making the forex market reach at such a gigantic stage?

The main reason of forex market achieving such high daily trading value is its unique decentralized way of trading. Forex market is very different from the stock market.

In the stock market, at any given point of time the trader gets the same stock price at every broker i.e. the price does not vary as it is traded in the centralized environment of the stock exchange. In forex market, it is different; there is no single price quote for any currency pair at any time. The price varies according to the source from where it is originating.

The forex market being so unique is still traded in a systematic way. Now, we will see how the price quote for any currency pair is formed and who are the main participants in the forex market?

7 Important Participants of the Forex Market

1. Major Banks - the initial source of the price quote is from the major banks, who decide the currency rates on the basis of demand and supply. To name a few are U.B.S., Barclays Capital, Deutsche Bank, and Citigroup.

2. Governments and Central Banks - Central banks are extremely top priority and important participants in the forex market. Interest rate policies and open market operations highly influence the currency rate. Central banks are responsible for the currency price fixing. In order to stabilize or make progressive competitiveness for the nation’s economy, central banks take necessary actions in the forex market.

3. Corporate Sector – International companies play a very important role in trading forex. We can understand this in a very simple way, for example; a company in United Kingdom will have to convert its British pounds into Japanese yen so that they could purchase the required electronic parts from japan for finalizing their product. Further in international business markets, currency is also exchanged in high volume if any mergers or acquisitions take place between large companies.

4. Investment Managers and Hedge Funds – More than 60% of the forex trading is speculative, which means the currencies, which are traded, by the Investment managers and hedge funds, has been only bought or sold the currency in order to profit from it. Hedge funds are known for their aggressive speculation in the currency market. They control equity which is worth billions of dollars and can even provide more support as the situations demand.

5. Medium sized, and Small Banks – These are the national and local banks which provide physical conversion of currencies like helping small business for foreign exchange transactions and also providing consumers with cash currency and travellers cheques.

6. Retail ECN’s, Retail Market Makers, Retail Forex Brokers – This segment includes all the forex retail brokers whether it would be a forex broker, forex dealer, forex market maker and forex bucket shop.

7. Individual Investors, Retail Traders and Speculators – We all individual traders and speculators come under this segment.

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