Who are the Foreign Exchange Market Participants?

There are many varied participants in the Forex markets but really banks dominate the landscape and the trading in foreign currency. The Interbank system is a private and exclusive trading system between the major banks which does not allow outside access or information to escape to the public. Here, banks trade for their own book and their major clients.

There are also two other major groups that make up currency trading. First, you have international conglomerates. These corporations use foreign currency as a hedge, or protection, against losses based on the movement of various currencies in the countries they operate in. Here, forex trading reduces their risk.

The other major group is hedge funds, which almost exclusively use the market to speculate. Hedge funds place bets, often leveraged bets, to speculate on the movement of one or more currencies. Since currency tends to have very small movements, in order to truly profit, hedge funds employ leverage with massive amounts of money to translate these 1% moves into great gains.

Individuals, mutual funds and ETFs make up a negligible part of the market, for now.