Now that we are familiar with the overall structure of the Forex Market, let’s take a closer look and learn about the main players.
Until the late 1990s, only the “Big Guys” could be in this game. The initial requirement was that you could trade only if you had 10 to 15 million US Dollars to start with. Forex was originally intended to be used by Bankers to and large institutions and not by us, the “Little Guys”. However, because of the exponential evolution of the Internet, online Forex Trading firms are now able to offer Trading Accounts to retails traders, like us.
Without further ado, let’s look at the Major Market Players:
- The Super Banks: Since the Forex Spot Market is decentralized, the world’s largest banks determine the exchange rates. Based on the Supply and Demand for Currencies, they are generally the ones that make the Bid and Ask Spread. These large Banks, collectively known as the Interbank Market, take on a large 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.
- Large Commercial Companies: take part in the foreign exchange market for the purpose of doing business. For instance, Apple must first exchange it’s US 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.
- 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 buy/sell operations in order to alter exchange rates.
- The Speculators: “In it, to Win it!” This is every successful speculator’s mantra. Comprising close to 90% of all trading volume, speculators come in all shapes and sizes. Some have big pockets. some roll thin, but all of them engage in the Forex Market with the sole purpose to make money.