The Forex market is not unanimous and centralized, like stock or precious metal exchanges.
Instead, it is built on the banking system, with the national and large international banks serving as the foundation for the market. Every operation eventually goes through those banks, which grants them a lot of power and influence.
This means, that the financial market participants in Forex are inherently unequal. Which is why you should know the major players and your own place as a trader in this hierarchy.
The Major Forex Market Participants
Forex as a concept was established back in 1980s, when the gold standard was abolished and the world needed a working currency exchange. The original version was pretty much an interconnected network of national banks, that was processing orders on behalf of their clients. There was no trading to speak of — only exchanging the currency for the needs of external trade.
Eventually, the large international banks were invited. This allowed more companies to use Forex. Some of the global corporations even installed their own Forex terminals in order to not be depended on the banks.
National banks, international banks and global corporations are the three major players on the Forex market. Each major player has enough influence to single-handedly change the financial situation on most currency pairs.Profit is not the final goal for them — the volumes they can receive on Forex are insignificant compared to their profit.
The Minor Forex Market Participants
By 1990s, someone noticed that the amount of currency in the Forex, as well as its high volatility, provided perfect conditions for trading. This caused an influx of opportunistic traders to the Forex market. However, not all of them were influential enough to afford the membership — and yet they were willing to pay for it.
Around the same time, the first online trading platforms started to appear. This gave the Forex maintainers an idea for an online Forex trading platforms. By 1996, they revised the entire codebase of Forex and introduced the first version of the software. From that point on, anyone could trade on Forex — as long as they were willing to shell out 6 000 USD for the terminal and 300 USD per transaction.
From that point on, Forex was flooded by the investment and hedging funds. However, the smaller traders remained unsatisfied, since not all of them could afford the maintenance for their own banking terminal.
Eventually, the Forex brokers became the gateways to Forex for the private traders. In addition to the Forex terminal access, the brokers provide the traders with the leverage options, technical analysis, and other forms of support. A good example of such company is Forex broker JustForex.
Investments and hedging funds, broker companies, and private traders are the minor Forex market participants. Their Forex trading strategy is based on maximization of profit. However, a large group of minor players can accidentally affect the market when they combine their influence.
There are two groups of participants on the Forex market. The major players — the national banks, the international banks, and the global corporations — seek to influence the price in their favor. The minor players — investment funds, broker companies, and private traders — use the movements created by the major players and trade on them.