MSG Team's other articles

9321 Financial Benefits of Incubators

The use of incubators is fairly common in startup companies. Entrepreneurs across the world use the services offered by incubators. This is because many entrepreneurs feel that being a part of a group that has similar objectives increases their chances of success. The use of incubators is fairly common in high-tech industries. In this article, […]

10560 Overconfidence Bias

Contrary to traditional economic theory, investors are not completely rational human beings. Instead, they are also emotional. This also means that they feel joy when they succeed and pain when they fail. This is the reason that when some investors succeed continuously for a small period of time, they start becoming overconfident. In behavioral finance, […]

11218 Secondary Revenue Streams in Retail

The retail sector has been in doldrums in the recent past. The entire industry is struggling financially. The financial troubles within the retail sector are indigenous. However, time and again, external shocks such as Covid-19 and Brexit exacerbate the financial trouble. The end result is a large wave of bankruptcies. These bankruptcies do not only […]

9345 Financial Ratios in the Retail Industry

The retail industry has become highly competitive. However, at the same time, the retail industry has also become quite data intensive. There is a wide variety of data which is available to the average retailer. For some retailers, this can lead to an analysis paralysis situation wherein they become obsessed with data and are not […]

11181 Root Causes of Inadequate Cash Flow in the Retail Sector

In the previous articles, we have already seen how important cash flow is for the retail sector. We have also explained how the lack of adequate cash flow can be a cause of concern and even causes many retail businesses to shut down. However, the fact that retail businesses have cash flow issues is an […]

Search with tags

  • No tags available.

The $4 trillion dollar Forex market witnesses a lot of market participants. However, all of these participants have different motives. An understanding of these motives is required to predict their behavior in the markets. Also, some of these participants have deeper pockets, better information and are more active than the others. Therefore, any student of Forex trading must be aware of the different kinds of participants that they are likely to come across when they trade in this market. This article lists down some important categories of market participants.

Forex Dealers

Forex dealers are amongst the biggest participants in the Forex market. They are also known as broker dealers. Most Forex dealers in the world are banks. It is for this reason that the market in which dealers interact with one another is also known as the interbank market. However, there are some notable non-bank financial institutions also that deal in foreign exchange.

These dealers participate in the Forex markets by providing bid-ask quotes for currency pairs at all times. All brokers do not participate in all currency pairs. Rather, they may specialize in a specific currency pair. Alternatively, a lot of dealers also use their own capital to conduct proprietary trading operations. When both these operations are combined, Forex dealers have a significant participation in the Forex market.

Brokers

The Forex market is largely devoid of brokers. This is because a person need not deal with brokers necessarily. If they have sufficient knowledge, they can directly call the dealer and obtain a favorable rate. However, there are brokers in the Forex market. These brokers exist because they add value to their clients by helping them obtain the best quote. For instance, they may help their clients obtain the lowest buying price or the highest selling price by making available quotes from several dealers. Another major reason for using brokers is creating anonymity while trading. Many big investors and even Forex dealers use the services of brokers who act as henchmen for the trading operations of these big players.

Hedgers

There are many businesses which end up creating an asset or a liability priced in foreign currency in the regular course of their business. For instance, importers and exporters engaged in foreign trade may have open positions in several foreign currencies. They may therefore be impacted if there is a fluctuation in the value of foreign currency. As a result, to protect themselves against these losses, hedgers take opposite positions in the market. Therefore if there is an unfavorable movement in their original position, it is offset by an opposite movement in their hedged positions. Their profits and losses and therefore nullified and they get stability in the operations of their business.

Speculators

Speculators are a class of traders that have no genuine requirement for foreign currency. They only buy and sell these currencies with the hope of making a profit from it. The number of speculators increases a lot when the market sentiment is high and everyone seems to be making money in the Forex markets. Speculators usually do not maintain open positions in any currency for a very long time. Their positions are transient and are only meant to make a short term profit.

Arbitrageurs

Arbitrageurs are traders that take advantage of the price discrepancy in different markets to make a profit. Arbitrageurs serve an important function in the foreign exchange market. It is their operations that ensure that a market as large, as decentralized and as diffused as the Forex market functions efficiently and provides uniform price quotations all over the world. Whenever arbitrageurs find a price discrepancy in the market, they start buying in one place and selling in another till the discrepancy disappears.

Central Banks

Central Banks of all countries participate in the Forex market to some extent. Most of the times, this participation is official. Although many times Central Banks do participate in the market by covert means. This is because every Central Bank has a target range within which they would like to see their currency fluctuate. If the currency falls out of the given range, Central Banks conduct open market operations to bring it back in range. Also, whenever the currency of a given nation is under speculative attack, Central Banks participate extensively in the market to defend their currency.

Retail Market Participants

Retail market participants include tourists, students and even patients who are travelling abroad. Then there are also a variety of small businesses that indulge in foreign trade. Most of the retail participants participate in the spot market whereas people with long term interests operate in the futures market. This is because these participants only buy/sell currency when they have a personal/professional requirement and dealing with foreign currencies is not a part of their regular business.

The participants have been listed in descending order. This means that dealers are the most active traders in the Forex markets, followed by brokers and so on. It would also be fair to say that dealers have the maximum information about the market, followed by brokers and so on.

Article Written by

MSG Team

An insightful writer passionate about sharing expertise, trends, and tips, dedicated to inspiring and informing readers through engaging and thoughtful content.

Leave a reply

Your email address will not be published. Required fields are marked *

Related Articles

Currency Wars: “Beggar Thy Neighbor” Policy

MSG Team

Cryptocurrencies and Taxation

MSG Team

Common Terminologies Used in Forex Markets

MSG Team