How to Trade Currencies: FX Market Participants

The foreign exchange market is a market where its participants trade currencies. In fact, it is the largest market in the world, with around $5 trillion going through the market each day.

As this market is continuously moving, it creates an opportunity for you to make profits. Moreover, to understand some of the moves, you need to understand the participants.

Therefore, in this article, we will cover the different types of participants. Moreover, we will explain how they affect the market. These participants are:

  • Central Banks
  • Global banks
  • International companies
  • Investment companies and hedge funds
  • Retail traders

Central Banks Trading Currencies

Central Banks impact the Forex market the most

The central banks control monetary policy in the nation in which they operate. For example, the federal reserve will control monetary policy for the United States. Similarly, the Bank of England controls monetary policy for the UK. And the European Central Bank (ECB) is in charge of Europe and so on.

These central banks and others around the world hold vast currency reserves. Of course, it is not only their own currency but other currencies, as well. For example, China holds around $3.6 trillion worth of currency reserves.

As a result, central banks can affect the forex market in a variety of different ways. First, central banks can alter monetary policy, and they can perform quantitative easing. In these cases, they interfere with the price of their own currencies. It is because central banks have the power to weaken or strengthen their economies.

Recently, the Swiss National Bank stated that they won’t hesitate to weaken their currency if it gets too strong. Knowing this, you can predict the moves if there is a sign of central bank interference.

Global Banks Shake the Market

Global banks as the market shakers

Unlike central banks, global banks deal with foreign exchange both on their trading floors and for their customers. Examples of these banks are Barclays UBS and Citibank, among others.

When a property investor is purchasing in a different currency, they will trade currencies with him. But these amounts won’t impact the market.

The currency exchanges that they need to clear is what influences the market the most. Since these banks trade currencies in billions of dollars, they are prone to speculative trading.

In these cases, global banks have a significant impact on the markets. Sometimes, global banks even get fined due to the price fixings.

International Companies Need for Trading Currencies

International companies need for trading currencies in order to function.

International companies possess a strong influence on the foreign exchange market. If the company is dealing with products in a foreign country, they will need foreign currency, too. Furthermore, they need to repatriate the money back at some point.

For this reason, multiple operations and exchanges are going on. If a company is opening a foreign subsidiary, the whole process gets complicated. As the money is flowing due to the need to trade currencies, the market fluctuates, too.

Companies are buying and selling assets, too. Since these can be significant volumes, the intensity of these trades has a high impact on the market.

Investment Companies Profit From Trading Currencies

Investment companies make their profit by trading currencies

These are companies such as the Bridgewater, with the owner Ray Dalio above. There are multiple ways of influence of investment companies and hedge on the market. First, it can be a viable investment if they believe a currency will move in a specific direction. Seemingly, traders can make a profit when they trade currencies via futures, spot, options, and carry trades.

Similar to the previous, investment companies may buy shares or some market assets. For example, this is the case if a US company wants to buy shares within a company in the UK. To do so, they need to trade currencies of the US (or any other country) for Great British pounds. If the amount is significant, this trade will shake the market.

At the same time, some of these companies hire professional traders trading daily. In this case, the sole intention of investment companies is to make profits.

Retail Traders’ Low Impact While Trading Currency

Retail traders have the lowest impact on trading currencies

In the end, there are people like you and me – retail traders. Since we’re in the markets intending to make profits, we are unable to move the markets.

Retail traders can’t make a difference, as central banks or global banks can. However, many retail traders are investing daily. Of course, the majority of them are day traders and scalpers. Despite their efforts, the volume traded by retail traders is still low.

It is impossible to measure retail traders with financial institutions and companies. Seemingly, a retail trader with timely information can make a difference to his pocket.

Sometimes, the news can cause massive buying or selling hysteria. Seemingly, this is unlikely to happen in the modern information age. But we should never underestimate the avalanche that one man can trigger.

Therefore, it is essential to understand and how and why they make their moves. It is because some are on the top and see what others can’t.


All five abovementioned participants have an influence on the market. The difference is in the size of their impact.

However, as we could notice in the end, it is crucial how other participants react. If any moves cause more reaction than usual, we can expect other participants to join. When it leads to massive hysteria, the effect on the market is enormous.

Therefore, we should consider all the participants equally.

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