The first (And only) participants in the Forex market were commercial banks, insurance funds, national banks, financial institutions, individual investors (With a bank account with a lot of zeros) and hedge funds. Depending on the type of participants, the objective was different:
•To earn profit from speculation in currency pairs through fluctuation
•The safety against rise and falls of currency pair impacts on trade
However, the scene is changed in the last 15 years: the latest technologies and internet have allowed everyone (With an internet connection and a computer) to be a participant in the Forex Market. But what do you need to enter the Forex Trading? Easy:
1. An Internet Connection
2. A computer (Or even just a smartphone sometimes)
3. An amount of money (Even a small one: today you can open an account with a Forex Broker, for only $100)
But beware: the fact that today, is so easy to be part of the Forex Market doesn’t mean that it’s easy to do Trading too. In fact, if you wish to only participate to the Forex Market, you can follow the guidelines above. Whereas, if you wish to earn something from the Forex Market, you should add this point to the guidelines above: 4. A proper knowledge. The fourth point, is something that sadly, most people underestimate too often. Moreover, you should always remember yourself that you are not a “Big fish” in the Forex Market (Unless you are able to move billions while Trading). The Forex Market can be seen as the sea: there are bigger fishes and smaller fishes. The bigger ones, can influence the decisions/movements of the others; whereas for the small ones, the only way to “count something” in the sea, is being united as if they were a big fish (It means moving in the same direction, at the same time).
Let’s see together, how many types of participants (Or fishes) there are in the Forex Market (Here the list of the Participants Forex Market).
Brokers cannot set exchange rates because they work as an intermediate source to provide the best price to investors. The brokers get their fees through transactions. They work as a middleman, between their clients and the Forex Market: the clients place an order, the Brokers then have the duty to execute these orders in the Forex Market. People (Small fishes) that want to trade, normally use a Forex Broker (Today there are hundreds of Forex Brokers on the web, but some of them are “sharks”: they just want to scam their clients).
Insurance Funds/ Financial Institutions
The name itself says everything: funds that use the Forex Market to earn through speculation, with money of other people of course. They use aggressive strategies and high profile trading volumes, they can move a lot of millions and even billions: they have multiple teams of professional traders, that work 24/24 for the sake of earning through speculation (The traders normally earn a commission for each transaction that they do).
Interbank market is related to transaction of currencies that are executed between financial institutions, commercial banks and central banks.
In the Forex exchange market, European central bank, United States Federal Reserve Bank, Bank Of Japan, Swiss National Bank, Bank of England are known as central banks. There are many reasons that force the central banks to intervene in the Forex market, but they usually move the biggest amounts of money (We are talking about billions) and they can heavily influence the rate of a currency and its movements.
The banks where all of us put their money: now, we guess that you have understood how your bank is able to give to their (And to you) customers annual returns on their deposit and so forth. In fact, if you decide to invest money in your bank or better saying: to give the management of your savings to your bank, that’s the way through which they are able to give you your share (Very little) of profits. Private Banks use the money of their clients, for Trading in the Forex Market: in this way they are able to move hundred of millions and even billions. That’s why, in the vast majority of banks, you cannot take all your money from your bank account in just one day, but there are a lot of restrictions and limitations. Because the bank is using your money for Trading purposes (But for other things too). Yes, as you’ve rightly guessed, they are risking, daily, your money in the Forex Market: the worse part of the story, is that they will keep the biggest shares of profits for them. And just give a 1% up to 5% of annual returns to their clients (Depending on which type of bank account they have chosen).
If you are a Trader, you surely know what an Hedge Fund is. For the others: an Hedge Fund is a Fund, where people (Rich people to be more specific) put their money and give the duty of manage the funds (We are talking about hundred of millions, at least) to one savvy trader or a small group of Traders. Sometimes hedge funds can be managed by companies; and sometimes, companies, societies, even banks, put a part of their money in the best Hedge Funds. An Hedge Fund is the essence of the speculation: if managed by savvy and professional Traders, they can guarantee high yearly returns on the investment (10% or even up to 20%). Naturally the ones that manage the Hedge Fund, take their part of earnings too.
The Average Trader
The vast majority of participants in the Forex Market, is the “Average Trader” (Known as small fishes). Did you know that more than the 90% of Traders (Someone says 95%, someone 99%), in the long run, will lose the money invested in Forex Trading? Well, now you know who are the 90% (Or more) of traders that lose their money: the “Average Traders”. Normally, they invest in the Forex Market, less than one million: sometimes they do Forex Trading as a part-time activity or to earn some extra monthly bucks. But beware: we are not saying that if you are a small fish, and you don’t have hundreds of millions to invest, you will always lose. That’s not the truth. If you wish to be a successful trader, you should have the proper knowledge: something that most of the Average Traders don’t have. Moreover you should never go against the “big fishes” (It means investing against the market. With an example: you see the prices raising, but you invest in the opposite way), because you should follow them. You have to be patient and realistic: you cannot become millionaire in just one month or even a week: if you really want to earn good money from Forex Trading, you should take your time and do not rush. Because the ones that rush, are first ones that fall.