Who are the main players in the Forex market?
We could categorize major players in the market in six groups:
Commercial and investment banks
Commercial and investment banks are the foundation of the Currency market, as all other players must deal with them to participate in the market. Commercial and investment banks are the founders of foreign currency exchange, which began as an added service to deposits and loans, expanding banks’ range of provided services.
Central banks are also major participants, but they are separated from commercial and investment banks, because of the different goal they are after when exchanging foreign currencies. Their main purpose is to provide adequate trading conditions in their home countries, controlling the availability and money supply. They also intervene in the Forex market at times of economic and financial imbalances, when fluctuations of the national currency need to be tempered.
high-net-worth individuals usually participate in the Forex market through the intermediation of commercial and investment banks. In the American private banking business, such person is defined as having investable assets of more than $1 million, which excludes his primary residence.
Hedge funds are a relatively new player on the currency exchange markets. They consist of high net-worth individuals that work in a partnership and have vast pools of investments, in most cases totalling well above hundreds of millions of dollars.
Businesses of any size
Businesses and corporations of any size, from small exporters/importers to multi-million enterprises are mainly driven by the needs of their business operations, during which often payments for goods and services in foreign currencies arise and require an exchange. Such players are called “commercial traders”, and they use the financial markets to hedge their operations by offsetting exchange rate risks.
Individuals (this is where most likely you will fit in)
These are mainly people who need to exchange some of their home currency for another, most often when they visit a foreign country and need to pay for goods and services in the local currency. Individuals are also private traders, commonly known as “freelancers”. They are using different online trading platforms to profit from price fluctuations but are trading with small amounts of currencies.
Now we focus our attention on different Forex trading styles.
Before starting as a trader, you should know the different types of traders and decide which style of trading you plan to follow.
Generally, several different trading styles can be distinguished:
1. day trading,
3. swing trading
4. position trading.
If a trader opens a few trades (buy and/or sell) in the FX market within the same trading day and closes all the opened positions before the market closes, he or she is referred to as a day trader.
It does not matter what strategy a trader uses, and Day traders can be institutional or private.
Institutional day traders are employed by financial institutions and have a few large advantages over-regulate people that are trading they, in general, have more resources, tools, equipment, large amounts of capital and leverage, a large availability of funds to trade continuously on the markets combine this with dedicated and direct access to data centres and exchanges. You can see why they have the edge.
Private (retail) traders generally trade with their own capital, but they may also trade with other people’s funds. In general, legislation and regulations put some restrictions concerning the amount of other people’s money a private trader can manage.
Although not necessary, almost all private day traders use direct access brokers like us, as brokers offer the fastest order entry to the exchanges and superior software trading platforms.
Day trading is a short-term trading style because it implements charts with a time frame of 15 minutes, 30 minutes or 1 hour.
Most of the time, day traders rely more on technical analysis, take advantage of small price movements, and trade highly liquid currency pairs to create many smaller profits.
When people are talking about scalping, they talk about a trading strategy. This strategy is a very intensive, quick trading strategy. A scalper keeps their positions open for only for a matter of seconds to a full minute.
They do this to get a large number of small profits, while exposing the trading account to a minimal risk, because of the ultra-short period of time. Only with a huge amount to trade with does this strategy make any sense.
Swing trading focuses on the prices short-term momentum (small Trends) and attempts to capitalize on movements which continue typically from one to four days.
Swing trading keeps a trade longer open then a day trader but does not keep it open as long as a Position Trader holding positions open for months, and even years. (this is not relevant for most traders).
This is the best chance of success in trading for beginner traders; it gives them more time, and better manages their risk. At the same time, it does allow for large profits because instead of the 1-3 pips a scalper is looking for the Swing traders look for 100 to 300 pips.
And then there are the position traders as mentioned above. These traders use the longest timeframe on the charts and might enter into trades lasting several weeks to several months. They look for the large over time sifts in price and aim for 300 to 1000 pips.
When making their decisions, these traders usually prefer to use fundamental analysis (or examining macroeconomic, political or other indicators).
So which trader are you or do you plan to become?
Most of our traders are a combination of day Traders and swing traders.
Get started now, and Let's find out!