Who are the Forex Market Participants?
The list below explains the various forex market participants who trade in the online forex market.
About The Various Forex Trading Market Participants
To know more about each of these forex market trading participants we shall look at the various categories of those taking part in Forex and also discuss how each of these influence the market.
- Governments - Forex Market Participants
Governments participate in forex market trading for the purpose of settling payments from goods and services procured from other countries. A Government will have to first convert its countries currency into that of the country that it wants to do business with and it has to do this through the online FX market. Sometimes governments may also take part in Forex so as to influence the value of their currencies.
Governments are some of the major players taking part so as to facilitate commerce with other countries or with other Governments. Goods and services received by the Government may be acquired under a different currency than that of a particular government, therefore a Government may be required to first exchange their money to obtain the required currency for a particular transaction.
- Central Banks - Forex Market Participants
The national central banks play an important role by controlling the money supply and setting the monetary policy of a their economy as well as controlling inflation through fiscal policy. They may also buy Forex money to keep as reserves within their custody.
Central banks are also major participants when it comes to forex market trade transactions as they may take part so as to either stabilize the exchange rate of their money in accordance with their monetary policy or even to carry out their specific monetary policy goals at a particular specific time.
For example central banks may devalue their currency so as to facilitate other countries to find it easier to do business in their country because the prices of goods will be more affordable than if their currency was expensive. This is so as to control the supply and demand of their money.
- Banks - Forex Market Participants
These large banks transact billions of dollars daily on behalf of commercial companies, their customers and retail traders. Some of this transaction activity is undertaken on behalf of corporate customers while some activity comes from the banks treasury room which also conducts a large amount of transactions, where dealers are taking their own positions to make profits.
Banks carry out most of their transaction activities so as to facilitate payments between companies and individuals.
- Interbank Dealers - Forex Market Participants
These forex dealers handle large amounts of business, facilitating interbank transactions and matching anonymous counterparts for comparatively small fees. With the increased use of the Internet, a lot of this business is conducted on electronic systems that are highly efficient in connecting many commercial banks.
These dealers deal with financial firms or retail forex brokers & provide institutional liquidity to these firms.
Interbank dealers are therefore major participants in Forex because all of the trades of investors are passed to these dealers who then offset these in the interbank market. Once traders places orders with their brokers who then pass these orders to the interbank dealers who then place these orders in the online interbank exchange, in what is known as providing liquidity.
- Commercial Companies - Forex Market Participants
Multinationals and commercial companies taking part in international commerce participate in Forex to support their International commercial activities.
Commercial companies take part so as to settle transactions between them and other international and global companies.
- Retail Forex Brokers - Forex Market Participants
Use of the inter net has brought about retail Forex brokers. These offer trading platforms, analysis, and strategic advice to customers and will place trades on behalf of their clients and facilitate these investors who do not have a lot of money. They will then provide capital to these retail investors in the form of leverage. These group only participates in as far as placing trades on behalf of speculators is concerned.
The fact is most banks do not undertake Forex trading on behalf of retail customers at all, and do not have the necessary resources or inclination to support these clients adequately.
The forex brokers will provide bid and ask quotes, depending on whether a retail investor wants to buy or sell, the trader will then buy or the currency at the current price quotes (bid quote - buyer will buy at this price, ask quote - the seller will obtain the currency at this price).
The role of this forex broker group is to only facilitate transactions between the market and the traders for a small markup called spread. The group does not therefore hold any orders of their own, they just facilitate the forex trading.
- Hedge Funds
Hedge funds use aggressive speculation methods to make profits. Hedge funds are investments that are under the management of experts and professional money managers, the size and liquidity of forex is very appealing and the leverage available in these markets also allows such funds to invest in with billions of dollars at a time.
