Foreign Exchange Rates Trading Heavy Hitters
When you trade foreign exchange rates you should realise that you are not alone. This does not mean that there are other retail traders because there are, but that there are a lot of other people trading as well. The retail trader is actually the bottom rung on the forex trader ladder and it is best to know who the heavy hitters are. While you cannot change what these heavy hitters are doing you can at least know that they are there.
The Banks and Foreign Exchange Rates
The banks are among the largest foreign exchange rates traders. The banks are actually responsible for most of the currency movement on the market which is why the market suffers lower liquidity when they are closed. All banks will complete large scale trades that move thousands of units of currency.
There are a few reasons why the banks trade so much on the forex market. Many banks trade forex for their clients, but they also trade forex for themselves. This is why there is the interbank market that only a conglomerate of banks can access. If you see a forex broker stating that they have access to the interbank they are lying because only the banks have this.
Governments and Central Banks
Technically the government and central bank do not regularly trade on the forex market. However, they have been known to use the market as a tool to stabilise the currency. If there are major fluctuations in the currency value these entities may use the market to regulate the supply and demand of the currency.
This can actually be very bad for the retail trader because of the changes it causes in trend and price movements. When the governments and central banks use the exchange you may see sudden shifts in the trends which could cause a loss for you.
Another major player on the forex market is the hedge funds. Hedge funds are generally looking to make money for themselves and this is why they are trading. There are many hedge funds that trade large amount of currency to change the value of a currency. This is done because of the speculation they work with.
The trading done by hedge funds can cause problems for the retail trader. The movements in the market that the large volumes these entities trade create can cause a false signal in your analysis. There is no way for you to predict what a hedge fund is going to do and you simply have to accept the losses.
Large companies and corporations are considered to be medium hitters on the market. They do not have a large impact like banks and hedge funds, but they impact the market more than retail traders. There are two reasons why a company may be using the forex market. The first reason is that they have to move money and the impact on the market comes from this. The second reason is that they are looking to make money from the market.
The large amounts of capital that the company can put into forex trading means that they can move larger amounts of currency. While a company trade generally does not cause a trend it can do a lot to push the momentum.