Forex Market Participants

Now let us take a closer look at the structure of the Forex market. In a typical market structure, there are people who work in the market or participate in it such as salespeople, loaders, customers and sometimes a host of other players in the supply chain. In the Forex market, the major participants are different: they are typically large entities with significant purchasing or selling power and they fall into the following categories.

Commercial banks

The main participants in the Forex market are commercial banks. It may seem like Central Banks and international corporations influence the market more significantly but that isn’t so. If you summed the foreign exchange transactions of all the commercial banks together you would see that it is they who produce most of the currency operations in the market, both on behalf of their customers and for themselves. Moreover, almost all of the market participants including you, us and Bill Gates keep their savings in, exchange their currency with and borrow from commercial banks.

Commercial banks are like big pots of stew where lots of ingredients all cook together in one place. All the customer transactions happen there and at the end we get general supply and demand. If demand increases – the brew gets hotter, if it falls – the brew cools! When a bank is not able to provide services to its customers it seeks help from other banks or tries to speculate on its own account. Once again, it reminds us that the Forex market is not an exchange but a market of interbank transactions really (as in the end all the activity is just a variety of banking).

Central banks

Central Banks are those that support the exchange rates of their respective national currency. They smooth their currency volatility and help stabilize their economies. They are responsible for the national reserves of other currencies and of the nation’s gold. They regulate the refinancing rates and help create conditions for the development of the national market.

The most influential institutions from the perspective of Forex are the US Federal Reserve or simply the ‘Fed’, the Federal Open Market Committee (FOMC), the European Central Bank (ECB), the Bank of England (BOE or ‘Old Lady’) and the Bank of Japan (BOJ). As we can see, the influences stretch globally and include North America, Europe and Asia. Central Banks are mainly responsible for smoothing exchange rates. To help illustrate using a metaphor, they are like the conductor of an orchestra making sure not to allow the rhythm of the ‘market’ to speed up too much, or to go too slowly or to play out of tune. In other words, Central Banks are responsible for large and long-term changes in the market and for the absence sharp spikes in exchange rates.

International investment funds and large corporations

There are very many “modern” corporations and far-reaching investment funds with offices all over the world. These carry out international deals, work with their