The forex trading market has only be opened up to individual traders in the last decade but it’s important to understand who was there before and why because they are still there and there actions can have a major impact on prices and liquidity.
The Banks – The forex market evolved to facilitate trade between nations and major commercial banks developed the inter-bank forex market informally between themselves without any real government involvement. Current trading today is largely concentrated in the hands of a dozen or so of these major financial institutions. There are hundreds of smaller institutions, including fx brokers who participate and they all contribute to the overall market liquidity.
Hedge Funds – Hedge funds operate in much the same way as any speculator although with far larger sums involved. As such knowledge that a hedge fund is buying or selling can provide clues as to where prices are headed.
Day Traders – That’s us! The advent of online forex trading has thrust the individual trader into the mainstream forex market.
Governments & Central Banks – National governments routinely participate in the forex market for funding of government operations and making transfer payments which have little impact on the forex market.
However, their involvement in currency reserve management is far more significant. Currency reserve management is is now a prominent feature of forex market trading and announcements of central bank involvement will impact prices.
The Bank for International Settlements (BIS) – Is the bank for Central Banks and acts in the forex market as an intermediary for nations wishing to diversify their currency reserves.
The G7 / G20 – The group of seven of the largest developed countries has recently been notionally widened to the group of twenty. Whist they obviously do not actually trade the forex market their pronouncements on global currency trade and policy can have a major impact on the forex market.
