Who Manages the Forex Market?

Forex
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Monday, March 04, 2019 9:00AM / Just Forex

 

Forex is the largest financial market. It operates 24/5. The main commodity on Forex is the currency, so the market has high liquidity. Modern technologies and round-the-clock work allow carrying out transactions instantly at the current market price, regardless of what time zone you are in, and also provide a significant amount of cash flow.

 

Forex is an over-the-counter market, transactions are carried out through special terminals. Trading platforms require installation on a PC or mobile device. There are also browser versions that only need Internet access to work with. MetaTrader 4 is one of the most popular platforms. It has gained popularity among traders due to its technical characteristics, enhanced security system, high execution speed and ease of use.

 

The market is formed by a certain number of participants. They range from large banks to individual traders who pursue their goals and interests: either hedging, regulating or speculative. The bulk of transactions on Forex are executed precisely for the purpose of making a profit on the difference in exchange rates.

 

Let's look who runs the Forex market?

 

Central Banks

Central banks perform a regulatory function, that is control and manage the national currency. They have a direct impact on the foreign exchange market, it can be either direct in the form of currency intervention or indirect through the regulation of the money supply and interest rates.

 

The most influential central banks are the Federal Reserve System (the Fed), the European Central Bank (ECB), the Bank of England (BoE), and the Bank of Japan (BoJ). They are of great importance in the foreign exchange market and can significantly influence the price movement.

 

By changing the interest rate, the central bank strengthens the rate of its national currency or lowers it. The movement in the market is very strong when the central bank announces a decision on interest rates.

 

Commercial banks

Due to the large volume of banking transactions, commercial banks provide the highest liquidity in the Forex market. They account for almost all foreign exchange transactions.

 

Commercial banks act as independent Forex market participants (speculative or hedging operations), and as intermediaries for their clients. Other market participants keep accounts in banks and make conversion transactions.

 

Large corporations

This group includes companies engaged in import/export activities. Trading international companies provide steady supply and demand for various foreign currencies. They do not have direct access to the foreign exchange market and use the services of commercial banks.

 

Investment and Hedge Funds

Large and long-term investments are the main type of operations of these market participants. Pursuing the goal of obtaining speculative profits, the funds conduct many transactions with securities of different countries in different currencies.

 

Broker
Brokers act as intermediaries, bringing a buyer and a seller together to one platform and executing trading orders. They charge a fee for their work. In most cases, it is the so-called spread (the difference between selling and buying prices), or a commission fee for a lot traded.

 

Individuals

The most numerous group are individuals who carry out a wide range of non-commercial operations: currency exchange, money transfers etc. Since 1986, individuals have had the opportunity to use the Forex market for the purpose of making a profit. Traders come to the market for profit, speculating on the price difference. In simple words, they buy the currency cheaper in order to sell it more expensive further.

 

Individual traders trade on Forex through brokers who provide all the tools for trading: a trading platform, analytics, real and demo accounts. In addition, the broker allows the trader to use leverage.

 

All market participants interact with each other. You can learn more about the Forex participants and its structure at JustForex education section.

 

A growing number of people are engaged in Forex. They enter the market to benefit from rate fluctuations. However, before opening an account and starting trading, the trader should learn the basics and gain skills on demo accounts.

 

Proshare Nigeria Pvt. Ltd.


 

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