Market participants in forex vary from large institutional investors to hedge funds to retail traders. The variety of participants creates fierce and continuous competition amongst brokers and traders looking for the best prices available.
At the very top are the major banks, followed by Electronic Brokering Services. Then it starts to trickle down to the retail market makers and retail traders. That doesn’t mean the bottom of the ladder trades less, it just means that the volume is much greater at the top as these major banks have major resources.
The four main categories of forex players are:
1. The Interbank Market
This is where the largest banks in the world come to play. They have the largest client bases and make thousands of transactions a day. A few of these banks include UBS, Citigroup and Credit Suisse.
2. Large companies and enterprises
These investors need to exchange currency on a broader scale when dealing internationally. Consider when Coca-Cola sells its products around the world. The beverage company would want to constantly monitor exchange rates to know when to exchange the money or plan ahead to offset some uncertainty in the markets.
Central Banks across the world can affect the price and stability of a currency just by the rhetoric involved in their speeches. All conferences are closely examined around the world to speculate on future economic and monetary policy.
These central banks can cause huge swings in the forex markets at any time of day.
Retail traders fall under the speculators category and are constantly watching prices to try and weigh in at the best time. Speculators range from the wealthiest forex traders to traders just starting out with their first accounts. Every trader is here for the same thing. They are all looking for their next big pay day.
If you are thinking about investing in forex, you should open a practice account and begin to understand how the markets work. Keep this account for a minimum of one year before transitioning to real money.