Forex Market Players
Now that you know the overall structure of the forex market,
let’s delve in a little deeper to find out who exactly these people in the
ladder are. It is essential for you that you understand the nature of the spot
forex market and who are the main forex market players.
Until the late 1990s, only the “big guys” could play this game.
The initial requirement was that you could trade only if you had about ten to
fifty million bucks to start with! Forex was originally intended to be used by
bankers and large institutions, and not by us “little guys.” However, because
of the rise of the internet, online forex brokers are
now able to offer trading accounts to “retail” traders like us.
Without further ado, here are the major forex market players:
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, for that matter).
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. A couple of these super banks include UBS, Barclays Capital, Deutsche Bank, and Citigroup. You
could say that the interbank market is THE foreign exchange market.
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 their
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
“In it to win it!”
This is probably the mantra of the speculators. Comprising close
to 90% of all trading volume, speculators as forex market players come in all
shapes and sizes. Some have fat pockets, some roll thin, but all of them engage
in the forex simply to make bucket loads of cash.
Don’t worry… Once you graduate from the School of Pipsology, you can be part of this cool
crowd! Of course, how can you be one of the cool cats if you don’t even know
your forex history?
#Forex #elliotTheory #LearnForex #Tradewithus
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