In my previous post we talked on what group of people or participants have the most influence in the forex market and how we should avoid / befriend them. First we ought to understand the heirarchy of where your wallet will fall in.
In the above diagram, we can see that the major banks akina HSBC, Citigroup, Deutsche Bank, Barclays Bank et cetera are the prominent players and smaller or medium sized banks make up the interbank market. The participants of this market trade either directly with each other or electronically, how, fanya research bana. The banks then determine the FX rates through their operations and have the true overall picture of the demand and supply in the overall market, and have the current scenario of any current.
The next tier of participants are the non-bank providers such as retail market makers, brokers, ECNs, hedge funds, pension and mutual funds, corporations et cetera. Hedge funds and technology companies have taken significant chunk of share in retail FX but very less foothold in corporate FX business. They access the FX market through banks, which are also known as liquidity providers. The corporations are very important players as they are constantly buying and selling FX for their cross-border (market) purchases or sales of raw or finished products. Mergers and acquisitions (M&A) also create significant demand and supply of currencies.
The speculators and retail traders that come at the bottom of the pyramid pay the largest spread, because their trades effectively get executed through two layers. The primary purpose of these players are to make money trading the fluctuations in the currency prices. With the advancement of technology and internet, even a small trader can participate in this huge forex market.
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