Who are the biggest players in the forex market?

Over $7 billion is traded on the FX market every day – but who are some of the largest players? Find out with our guide to the biggest forex market participants.  

Who are forex players?

The major forex players trading in the market every day include:

• Commercial banks
• Governments and central banks
• Hedge funds
• Retail traders
• Brokers

Let’s take a look at each one and what they do in more detail.

Commercial banks

Commercial banks are financial institutions that provide services to individuals and other businesses, such as loans, savings accounts, checking accounts and investment services.

They trade in the forex market on their behalf – to hedge exposure and make a profit – as well as offer their customers the ability to participate in currency trades and speculate.

Commercial banks are some of the largest participants, and as such are essential for market liquidity. Due to their position in the FX market, commercial banks have a significant advantage as they see the money flow from different directions – from government organisations, hedge funds and individual investors.

Governments and central banks

Governments and central banks are vested in controlling the forex market given the issues a currency can have on the domestic economy when it becomes too strong or weak.

Some governments have full control over monetary policy, while some will have a central bank that operates independently.

Interventions in the forex market include indirect measures such as raising or lowering interest rates and more direct measures such as fixing exchange rates and managing currency reserves.

For example, if the Hong Kong Monetary Authority (HKMA) wanted to lower the value of the HK dollar on foreign markets, it might exchange the domestic currency for US dollars. This would reduce demand for HKD as it’s viewed as weaker and increase the value of USD.

It is more common to see government and/or central bank intervention in countries with fixed or pegged exchange rates. For example, the USD/HKD is set in a range of 7.75 to 7.85, so the HKMA will regularly intervene to keep that rate.

Hedge funds

Hedge funds are actively managed financial partnerships in which investors pool their funds into a single portfolio and a fund manager attempts to earn high returns for the collective.

There are several types of hedge funds, some of which will be more active on FX markets than others. For example, currency funds are naturally more focused on FX movements, but firms that invest in foreign assets will also need to hedge their currency risk.

As hedge funds can be in control of large amounts of money, the positions they take – whether to hedge or speculate – can have a large impact on FX rates.

Brokers

Brokers are financial intermediaries between two parties. They buy and sell FX on behalf of clients, whether they’re institutions or individuals.

Brokerages are often divided based on this distinction. You’ve got prime brokerages, which offer liquidity, leverage and support to institutional FX participants (and some larger individual traders) and retail brokers, which offer individuals access to FX markets.

Retail brokers typically act as dealers or market makers in-house rather than creating transactions between two parties. That means they take the opposite side of their client’s trades, or net off client positions, instead of finding a third party to do so.

Retail traders

Retail traders are individuals looking to speculate on or hedge against FX movements. They’ll buy and sell currencies in the hope of making a profit from their position or reducing losses to other trades.

Although each position is relatively small compared to those taken by institutions or governments, the sheer volume of retail traders on the market can make them a powerful group. The number of retail traders increases around large events, such as central bank meetings.

Retail traders also only hold these trades for a relatively short period, waiting for just a few pips of movement before exiting the market.

Most traders will access the market via a broker or trading provider. This is because brokers can offer leverage, which lowers the amount of capital needed to open a position. For example, a standard FX lot is 100,000 units of currency, which means if EUR/ISD was trading at $1.3000, you’d have to pay $130,000 to open a position. But leverage brokers might only require 4% of that sum (25:1) to open a trade, which would be $5200.

Who controls the forex market?

No one body controls the forex market because it is decentralised. Commercial banks are considered to have the most control over the FX market given that they act as market makers for businesses and individuals, alongside central banks who influence rates.

Who trades currencies?

There are a huge number of participants in the FX market, all with different goals. Banks, commercial companies, hedge funds, central banks and individual speculators participate in it and exchange currencies daily for both speculative and hedging purposes.

Is the forex market regulated?

Yes, trading on the forex market is regulated, just not by a centralised body. There are several global supervisory bodies, which set the standards by which all brokers under their jurisdiction must comply.

For example, FX trading in the UK is regulated by the Financial Conduct Authority (FCA).

Each body will have its own regulations, but the standards include being registered and licensed with the regulatory body, undergoing audits, and communicating changes of service to their clients.