Who Trades Forex? According to survey results presented in 2014:
- About 70% male and 30% female. The proportion of women is highest in Europe (41% female).
- In addition, the median age of 35 – is relatively young.
- 35% in Europe, 40% in Asia, and only 4% in the USA.
- Americans have the highest average deposit at over $6,000.
- Breakdown by region: Europe 35%, Asia 24%, Middle East 13%, South America 8%.
- 84% believe it is possible to make positive monthly returns, and 30% do.
- Larger accounts tend to be more profitable.
A big part of understanding any market is knowing the market participants and getting a handle on the market structure. For example, the Forex market is the world’s largest market by cash volume, with approximately $4 trillion worth of currency changing hands daily.
Unlike regulated stock markets which trade in shares of public companies, the Forex market is not centralized, and it is best to think of it as a series of fountains or a wedding cake, with the most important participants at the top, with trades cascading down.
The most prominent participants get the best terms and can move the market with their trades, although the market is so big that it is difficult for any entity to manipulate. So, working in order of size from the top down, the Forex field looks like this.
Who Trades Forex?
Central banks are national banks in charge of issuing and lending the national currency. They are at the very top of the “food chain.” They usually also set monetary policies such as interest rates and can increase or reduce the supply of their currency.
They also usually have enormous reserves of other currencies and stores of value, such as gold bullion. This means that they have several powers that, when exercised, can dramatically move the market in their cash.
The best example was in 2015 when the Swiss National Bank announced a surprise removal of the Swiss Franc’s peg to the Euro, which moved that exchange rate by up to 30% in some quotes.
Central banks often have policy aims, whether officially stated or not, of preserving their currency’s relative value within certain bands, and they will implement such policies by intervening in the Forex market when the band’s limits are threatened.
Note that they are not universally successful: the Bank of England unsuccessfully tried to hold up the value of the British Pound against the German Deutschmark in 1992. Still, it was forced to abandon its attempt after spending more than a billion Pounds in the market.
Who Trades Forex It is much easier for central banks to devalue their currency than to maintain or increase a value. Central banks also have a role in lending and providing liquidity to the largest banks which serve their nations.
Who Trades Forex If these large banks get in trouble, the central bank must intervene to clean up any mess.
Who Trades Forex?
Most of the market volume is traded in the interbank market, i.e., between banks. Banks sell for themselves and their clients, which will be listed further down the chain below. The interbank market is dominated by the “big four”: by volume, this is Citibank at 12.9%, JP Morgan and HSBC at 8.8% each, and Deutsche Bank at 7.9%.
Banks trade for themselves both as a speculative venture (although the size of this business is decreasing) and to build their currency inventory and act as a dealer to prominent, professional market participants.
Who Trades Forex As dealers, banks profit from the bid/ask spreads they impose on exchange rates quoted to their clients.
Investment Managers and Hedge Funds
Banks’ biggest customers are speculative hedge funds and managers of other investment vehicles. They may want to exchange currencies for financing purchases of securities denominated in money they do not own, hedge against a risk in future fluctuations in currency exchange rates that could adversely affect their securities portfolios, or speculate upon such volatility for profit.
Who Trades Forex While hedge funds trade in large volumes and get a lot of publicity, the pension fund industry accounts for a larger total of assets under management. However, as their trading style tends to be more conservative, the hedge funds, as more significant risk-takers, tend to influence the Forex market significantly.
Who Trades Forex?
Corporations, like investment managers and hedge funds, also deal with banks. More giant corporations deal with larger banks directly, while smaller businesses work with smaller banks. Forex brokers are corporations and fit in this niche in the dealing chain.
Many corporations are multinational or at least engage in international trade. Even if they do not, their profits may be exposed to the risk of fluctuations in currency exchange rates.
Who Trades Forex For these several reasons, corporations need to make currency transactions and are often at a market disadvantage because they are forced into the market: they cannot always pick and choose when they trade.
For this reason, corporations often use trading in Forex derivatives, such as swaps and forwards, as an effective way to hedge against such risks well in advance.
Note that the total volume of Forex trading by corporations for business purposes is dwarfed by the amount traded by Investment managers and hedge funds for speculative purposes. However, it could be argued that many investment managers are changing as hedgers rather than speculators and share some elements typically characteristic of corporations.
Who Trades Forex?
Unfortunately, we are at the very bottom of the chain, trading on worse terms than every other actor listed above. We need retail Forex brokerages to change, and these brokers may not even be hedging their risk on our trades.
If they are, they will usually use a bank for their Forex dealing, which in turn is probably another bank, which may finally have behind it one of the “big four” or tier 1 banks. So the prices, spreads, etc., will slowly worsen at each level.
So, who are the hundreds of thousands of people like us who trade Forex with retail brokers?
Who Trades Forex?
The forex market is a dynamic and exciting place, filled with a diverse range of traders from all walks of life. From experienced professionals to fresh-faced beginners, anyone can enter this thrilling trading world and potentially earn huge profits.
But what motivates these traders to take on the challenges and risks of the forex market? For some, it’s the allure of financial freedom – the chance to achieve financial independence and live on their terms. For others, it’s the adrenaline rush of making high-stakes trades and seeing the potential rewards.
And then some trade Forex to support themselves and their families. They may come from humble backgrounds or face financial hardships, but through their dedication and hard work in the market, they can turn their lives around and achieve their dreams.
But regardless of their motivations, all successful forex traders share certain qualities. They are disciplined, patient, and strategic, keeping their emotions in check and making informed decisions even in high-pressure situations. In addition, they are willing to put in the time and effort to learn the ins and outs of the market and constantly adapt and refine their strategies.
So whether you’re a seasoned professional or a wide-eyed beginner, the forex market is waiting for you if you have the drive and determination to succeed. So join the ranks of successful traders and take the first steps towards achieving financial freedom and living on your terms.
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