In the past, the foreign exchange market was just for individuals and institutions with large sums of money. The average Joe didn’t have the means to participate in this industry because the entry price was just too steep. But, due to the digital age, online brokers were able to start offering trading accounts to anyone who is interested.
Today, you only need a computer and internet connection to start taking part in forex trading. The low entry barrier is a key factor why the number of traders has increased in the past decades. In fact, it’s now the world’s largest financial market.
While traders have unique objectives, they’re typically grouped into five categories. Read on to get to know them better.
Commercial banks make large transactions for both themselves and their clients on a daily basis. Due to the large volume of transactions, they inevitably help determine exchange rates. Their influence on the market flow is also the main reason they’re referred to as “flow monsters.”
Some of these banks are Citi, UBS, JP Morgan, Barclays, HSBC, and Bank of America.
Central banks are in charge of establishing the monetary policy of their domestic economy. They control their countries’ monetary interest rates as well as inflation. In this sense, when the two factors change, they inevitably influence current valuation.
Central banks can also affect the forex market in other ways. There are instances where they can intervene when they want to realign exchange rates. They can also start massive buy and sell operations to alter those rates if they think that their currency is priced too high or too low.
Hedge funds are the next largest players in the market, right after commercial and central banks. They are able to trade in large amounts because they use pooled funds allocated for investment practices. Most of them come from large accounts like pension funds, endowments, and foundations.
Corporations usually take part in the foreign exchange market to do business. For example, a company like Apple would have to convert US Dollars into other currencies to buy necessary components of their products from other countries like Japan and China.
That said, corporations also get involved in forex to supplement the value lost because of exchange rate disequilibrium. Taking an offsetting position in the currency market will help stabilize the value of their business operations.
Retail investors are the last type of participants in the forex community.
In contrast to prominent institutional players, individual investors trade with their private accounts, risking their own money. They come in all shapes and sizes. Some might have deeper pockets than others, but all of them engage with one goal in mind: to make money.
Learn All About Forex Trading
Learning key aspects of the industry, including its major players, will help you understand how the industry works. It enables you to mitigate risks and become a better trader. It also allows you to create a more effective strategy, translating to higher profit.
The Forex Library shares fresh insights about the forex industry and its key players. We also share the latest market updates to help with your profitability. Contact us today to sign up for forex trading training courses.