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The Forex Market Participants That You Should Know

Ben Needles

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The Forex Market Participants That You Should Know

The foreign currency exchange, or forex as it is referred to, is composed of several categories of participants. Participants are those institutions that are actively involved in the trading of currencies in this case. The most significant difference between the operations of the stock markets versus forex is that the stock market participants all have access to the same prices of the product.

With forex, the market is divided into various levels of access. There are six different categories where levels of access are concerned as follows:

1. banks

2. commercial companies

3. central banks

4. investment management firms

5. hedge funds

6. retail forex brokers

Banks - a segment of the inter-banking market which is responsible for 53% of all forex trading taking the six groups above into consideration. The inter-bank market caters to the majority of the daily commercial traders and a large portion of the speculative investment segment of traders. Occasionally, trading is done at the behest of the customer, but most of it occurs relative to the proprietary desks trading for a banks own accounts. Until just recently, large amounts of business involving interbank trading were conducted by foreign exchange brokers. Today, the majority of this trading is conducted using efficient electronic systems.

Commercial companies - another key part of the forex market stems from financial activities wherein commercial companies seek out foreign exchange for the purpose of purchasing goods and services. Compared to banks and investment speculators, these trades are usually of a smaller nature, therefore having an insignificant short-term impact on market rates and values. The trade flows are assessed as more important from a long-term impact standpoint.

Central banks - this segment attempts to control certain aspects of the market such as inflation, interest rates, and supply factors, and will oftentimes employ the use of both official and unofficial targeted rates for their currencies. Central banks therefore are considered to be a very important segment of the forex market because of what they have the ability of influencing.