The forex market is the largest financial market globally, with the highest amount of capital invested and traded daily. Research has shown that over $6.8 trillion is invested in the forex market, with over $5 billion traded daily. Therefore, the forex market has enough money for everyone to become rich. A significant number of billionaires have been created through the forex markets. Thus, even governments today participate in forex trading. This article, therefore, exposes the significant participants in the forex market and the percentage of capital coming from each segment. The commercial banks contribute the largest capital traded in the forex market, while other significant contributors are listed and discussed below.
|Hedge Fund Managers||Retail Traders|
Large commercial banks are eminently the most significant players in the forex market. They contribute the largest amount of capital traded in the forex markets. Over 80% of the money traded in the forex markets comes directly from large commercial banks. Moreover, the laws governing most nations have made it paramount for virtually all the citizens of each country to deposit their funds with a commercial bank of their choice. Commercial banks profit extensively from this requirement by trading the forex markets with the funds entrusted to them and generating returns in interest for their clients. The leading commercial banks that move the Forex Markets are Citi Bank, JP Morgan, UBS, Barclays Bank, Deutsche Bank, BAML, Goldman Sachs, HSBC, Morgan Stanley, etc.
Central banks are often known as liquidity providers. They provide the different currencies to be exchanged by the commercial banks. The Central Banks of every country reserve the right to print their country’s currency and make them available for exchange over the counter. They supply the commercial banks with the required foreign currencies to be exchanged in the forex market. Remarkably, the central banks influence the Forex Market extensively through their enacted foreign exchange policies. Forex traders are always anxious about the expectations of new monetary policies from the leading Central Banks.
Just like the individual and commercial banks seek profits by trading the Forex Market, so does the government. Most governments invest a large number of their funds into the forex market to hedge against inflation and boost their local economy. As a result, governments are estimated to contribute over 5% of the total amount traded in forex markets.
Hedge Fund Managers
Hedge Funds constitute a large pool of money contributed by wealthy individuals and entrusted to a seasoned trader to trade on their behalf and deliver returns. Hedge Fund Managers trade large sums of money. Hence, They exert a fair amount of influence in changing the market’s direction after the commercial banks. Often, hedge fund managers tend to align themselves with the direction taken by the commercial banks to remain profitable.
Exchange-traded funds (ETFs)
ETFs typically refer to a large amount of money pulled together by investors to purchase assets sold in the markets through an exchange. ETFs are often offered as a mixture of securities that one can easily buy or sell through a brokerage firm or at the exchange. The idea of creating an ETF allows many investors to pool their money in one vehicle and make it available for trading by an experienced manager as an ETF. ETFs are typically created by investment funds that pool their clients’ money to form the ETF. A few examples of popular ETFs traded today are Xtrackers Harvest CSI 300 China (A-Shares ETF), SPDR Dow Jones Industrial Average ETF, iShares MSCI Emerging Markets ETF, iShares MSCI EAFE Index ETF, iShares MSCI Indonesia ETF, SPDR Gold Trust ETF, SPDR S&P China ETF, iShares Russell 2000 ETF, United States Oil Fund ETF, SPDR Technology Select Sector ETF, Vanguard Growth Index Fund ETF, etc.
Brokers play a crucial role in the forex markets. They bridge the gap between the individual and the forex markets. Hence, they are seen as intermediary financial service providers that make it easy for individuals to participate in the forex markets. Brokers are indispensable to the markets and retail forex traders because they provide the leverage that boosts the tiny amounts deposited by individual traders. Brokers allow retail traders to use leverage and trade amounts larger than their initial deposits. Brokers are best described as order executors since they execute the trader’s order directly in the markets and generate a result for the trader.
Multinational Corporations (MNC)
Multinational Corporations in business are companies that have branches spread across other countries. MNCs act as an umbrella covering various companies based in different countries, yet they are listed in one country that hosts their headquarters. MNCs deal extensively in forex since they have to convert the currencies they earn in different countries into that of their home/listed country. Often they hedge against inflation by converting their main currencies into that of the new country’s currency or a stronger one to profit over time.
Many big institutions today participate in the forex markets to maximise their profits, given the drive to keep up with the existing monetary policies and the payment of taxes etc. Therefore, some institutions consider it viable to invest in the forex markets to make double profits and as a hedge against inflation.
The retail or individual traders constitute the largest population of people trading the forex market today. However, the amount of capital contributed by the retail investors is relatively small compared to other participants. As a result, individual traders often tend to rely heavily on the leverage provided by their broker to enable them to trade the forex market.
The regulators are government authorities that regulate the activities of all the forex market participants, especially brokers. They ensure sanity in the forex markets and that brokers pay their clients at the end of the day. Every country has its regulator. The most critical global regulators are the SEC, FCA, FRSC, FSCA, and FSC.
The foreign exchange market is the largest financial market in the world today. The forex market opens for 23 hours daily. The bulls and bears struggle daily to defeat each other and book a profit. Therefore, every trader should make an effort to learn from expert traders with a proven track record to increase their chances of making good profits from forex trading.