An insight into Forex market and its major participants

December 4th, 2011

Forex trading is a very challenging task and every bit of information you can get on this topic will be useful for you in the long run. In this article we will look at different participants of forex market and the role they play in currency trading.


Forex Market Participants

Forex market Forex marketis not like stock market and is sectioned as per different access levels. At top position there is market of different banks comprising commercial banks as well as dealers in securities. As we go down access level sections, the forex pip spread starts to widen and the primary reason for that is the volume of forex trade occurring at different levels.

Access levels in foreign exchange markets are also based on amount of money that is being traded. It is worth noting here that inter bank transactions amount to almost fifty three percent of all the forex trade occurring in different markets. After that the market is share by different interest groups such as small banks, commercial companies and similar other entities.

1. Banks

For forex traders it is important to know that inter bank day forex trading makes for most of daily commercial turnover of different markets and is responsible for most of the speculative trading that takes place. Banks do trading for their customers also but most of it is done for their own account.

2. Commercial Companies

Commercial companies are also integral part of forex currency trading since they require foreign exchange to make payment for purchase and sale of services & goods. Their trading percentage is relatively small compared to banks and they have very less effect on forex rates.

3. Central Banks

These banks have important place in the foreign capital markets and attempt to manage money supply and currency cross rates. If necessary the central banks stabilize markets using the forex reserves they have. Banks also intervene if currency system prevalent in a country is of dirty float type and such intervention is done several times in a year.

4. Hedge Fund Speculators

As much as seventy to ninety percent of the forex trade taking place is speculative and these forex hedge funds have control over equity value which is millions of dollars.

5. Firms doing Investment Management

These firms utilize forex for foreign security dealings. Some others have operations called currency overlay used for managing currency exposure of clients. The count of such firms is not large enough but they have good AUM and generate significant amount of trade.

6. Retail Traders

Retails traders are one of the growing segments of equity markets and participate using different banks and forex brokers. These traders fall under CFTC & NFA regulations in USA.

7. Non banking forex companies

NBFCs provide international payment services as well as exchange of currencies to different companies and also individuals. They are not involved in speculative trading and in some countries like UK, about fourteen percent of currency transfers are through NBFCs.

8. Money Remittance Companies

These remittance companies do transfers by emigrant to home nations they come from. Similarly there are bureaux de change which provide services to travelers and are located at places such as airports & tourist locations to assist tourist in exchange of currencies.



Thus from the above mentioned details you must have gained knowledge about the major participants of the foreign exchange market and the role they play in forex day trading.



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