By now, you are entirely aware of the overall structure of the forex market. So we are going to look deeper and unravel the main players behind the curtain.
Forex, as a market/financial concept, was primarily created for the sole use of bankers and other large financial institutions, and not by outsiders like ourselves.
But, owing to the emergence and rapid development of the internet, forex brokers that operate online can now offer trading accounts to countless retail traders like you and I.
Without wasting much time, below are the key players in the forex market.
1. The superbanks
As you know, it is the world largest banks that determine the exchange rates because the forex market industry is decentralised.
It is the largest banks that typically make the bid/ask spread a majority of us loved so much (or even hate), based on the principles of demand and supply for currencies.
The existence of these vast banks is what is collectively known as ‘the interbank market’. This is where an unprecedented volume of forex transactions are processed each day between the interbank and its customers.
Examples of these banks include, but not limited to JPMorgan, Citi Bank, Deutsche Bank, Barclays, UBS, HSB, and more.
2. Huge commercial corporations
A lot of companies participate in the forex exchange market for business reasons.
Take for instance a company like Apple, for it to acquire vital electronic parts from its Japanese counterpart; it must first exchange its USD holdings to Japanese Yen to facilitate a smooth transaction. Companies trade in much smaller volumes, compared to those in the interbank market. Therefore, they typically engage commercial banks for their transactions.
Another process that can create fluctuations in currency exchange rates is Mergers & Acquisitions (M&A).
M&As that occurs across international borders involves many currency conversions that have the potential to affect prices around.
3. Government and Central Banks
Sovereign states and their central banks like the Bank of England, the Federal Reserve and the European Central Bank, are also involved in the forex market on a regular basis.
In a similar fashion like corporations, national governments take an active part in the forex market business to perform their policies, handle foreign exchange reserves and to affect international trade payments.
As for central banks, they influence the forex market whenever they adjust interest rates as a way of curbing or curtailing inflation. This also enables them to affect the outcome of currency valuation.
The forex market has in some instances witnessed central banks direct or verbal intervention, especially in the process of realigning exchange rates.
Again, there are times when central banks think their domestic currencies are valued too high or too low. So to alter such process, they revert to large sell/buy operations.
4. Speculators
“We are in it to win it,” is probably the famous mantra of the more than 90% of speculators that are involved in trading volumes in the forex market. Speculators are also part of the forex market, and they are available in all shapes and sizes.
While some are more financially buoyant, some are just thin in the pocket. Nevertheless, they all participate in the forex market to make huge profits.
Don’t fret…by the time you are through with your studies in Pipsology; you too can participate. Oh, yea, you might want to ask; ‘How can I be one of these cool cats when I don’t know my forex history? So look out for that as the next topic; ‘Know your forex history’.
