What you'll learn
- Name the main groups active in the market
- Understand why most participants are not speculating
- See where a retail trader fits
Central banks
A central bank holds foreign currency reserves and sometimes buys or sells its own currency to influence its value, which is called intervention. More often it moves the market simply by setting interest rates and talking about them. Central banks are the only participants who can create the currency they trade, which makes them the most powerful players even when they are quiet.
Commercial and investment banks
Banks are the market's plumbing. They quote prices to clients, take positions with their own money, and trade with each other to balance their books. The largest of them make up the interbank market described in the previous lesson.
Funds and asset managers
A pension fund buying Japanese shares must first buy yen. A hedge fund that thinks the pound is overvalued sells it. Institutional flows like these are large and can dominate a session, and they are often driven by decisions that have nothing to do with the currency itself.
Corporations
A carmaker that exports to America earns dollars and pays wages in euros, so it sells dollars for euros every month. Companies also hedge, locking in a rate for a future payment so that a currency move cannot wipe out a deal's profit. Corporate flows are steady and largely predictable, and they are not trying to make money from the exchange rate.
Retail traders
Individuals trading their own money through a broker, usually on margin and usually short term. Retail volume is a small share of the total, but retail is where forex brokers, prop firms and sites like this one operate. A useful thing to remember from this list is that most of the market is not trying to beat you; it is paying invoices, managing reserves or moving investments, and it will keep doing so whatever the chart looks like.
Key takeaways
- Central banks, commercial banks, funds, corporations and retail traders all take part.
- Most volume comes from participants who are not speculating.
- Retail traders access the market through brokers and trade a small share of total volume.
Knowledge check
Trading forex, CFDs and other leveraged products carries a high risk of losing money. This lesson is general education, not advice. Risk disclosure.