Market participants

Central banks

Central banks are the primary players in the forex market. They use monetary policy and their foreign exchange reserves to stabilize their country's currency and manage the money supply. When a central bank raises or cuts its rate, every pair that holds its currency reprices.

Commercial banks

Commercial banks are the second-largest players in the market. They provide currency trading services to their clients, including retail traders, hedge funds and institutional investors, and they trade with each other on their own account. Most of the quotes you see on a chart start life on a bank's desk.

Hedge funds

Hedge funds are speculative investors who trade currencies to earn profits. They use complex algorithms and strategies to identify market trends and make large trades with the aim of earning high returns.

Investment managers

Investment managers are institutional investors who manage funds on behalf of their clients, such as pension funds and mutual funds. They trade currencies as a way of diversifying their portfolios, and to hedge the currency exposure that comes with holding foreign assets.

Corporations

Large corporations that operate in multiple countries are also major players in the forex market. They use currency trading to hedge against currency risk, which arises when a company earns in one currency and pays its costs in another and is exposed to fluctuations in the rate between the two.

Retail traders

Retail traders are individuals who trade currencies through online platforms provided by brokers. They may trade for speculative purposes or to hedge against currency risk when travelling or making international purchases.

Speculators

Speculators are traders who trade currencies to profit from short-term market movements. They typically use leverage to magnify their gains, and that leverage increases their risk in the same measure.

Seeing where they stand

Overall the foreign exchange market is a diverse and dynamic marketplace, with a wide range of participants and each with its own reason for trading currencies. You cannot see each of them on a chart, but you can see their positioning. The weekly Commitments of Traders report on the COT page breaks down who is long and who is short in each currency, so you know which side the large players are standing on before you take a trade.