Who Controls the Forex Market
The Forex Market is a dynamic and ever-changing over-the-counter market. It is open 24 hours and 5 days a week. Trillions of dollars are traded in the Forex Market daily. From commercial banks to retailer traders, there are several participants in the forex market. Now the question arises, Who controls the forex market and its participants? It is important to first understand the forex market and its participants in order to understand who controls it.
What is Forex Market?
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The Forex Market is the world’s largest financial market where buying and selling of currencies take place for different reasons.
There are many ways an individual trader can trade in Forex, which includes spot markets, forwards, currency futures, swaps, and options contracts.
There are four major sessions in the forex market, which include London, New York, Sydney, and Tokyo. However, the forex market is dominated by three forex sessions which include London, New York, and Tokyo.
Large Commercial Banks, Central Banks, MNCs, Retail Traders, Brokers, and Hedgers are the major players in the Forex Market.
There is no single entity or organization that controls the forex market. However, in most countries, Central Banks control, monitor and supervise the trading activities of Forex in most of the country.
Super Banks are the largest commercial banks that determine the Exchange rates based on the supply and demand of a particular currency. For example, Deutsche Bank, UBS, Citigroup, etc.
Forex trading is controlled by macroeconomic, political, environmental, technical, and social factors.
All the Forex players have an impact on the forex market. These players can influence the market. However, none of them directly control the forex market entirely.
How to trade in Forex?
Who dominates the forex market?
There are four major sessions in the forex market, which include London, New York, Sydney, and Tokyo.
However, the forex market is dominated by three forex sessions which include London, New York, and Tokyo.
There are more than 170 legal currencies in the forex market. However, USA Dollars and the other seven major currencies control the forex market. Traders usually trade in major currency pairs as it is easy to keep an eye on these pairs rather than all of the currency pairs.
Participants in Forex Exchange Market
- Large Commercial Banks
- Central Banks
- Government and Regulators
- Exchange Traded Funds
- Small and Medium Banks
- Forex Trading Platforms
- Retail Traders
The FX market is a type of decentralized market which means that there is no single organization that regulates the activities related to currency trading. Now a question arises if there is no central entity in Forex trading, then who controls the Forex Market?
The answer is there is no single entity or organization that controls the forex market. However, the major participants of the Forex Market, such as commercial banks, central banks, and big companies, act as market makers and dominate the forex trading.
Let us study the major participants of the forex market separately who control the forex market directly or indirectly and how they do so with the respective examples.
- Deutsche Bank
- Goldman Sachs
- Bank of America
The central banks are the institution that manages the currency and all financial activities of the country. The right to print and distribute the currency is reserved to the central bank of a country.
Central Banks are amongst the most prominent players in the forex market. They control, monitor, and supervise the trading activities of Forex in most of the country.
Central banks have certain significant powers related to trading. Due to this, they influence the Forex Market. A central bank intervenes in the market when its currency becomes a problem for the domestic economy.
Let us understand how the Central Bank influences or controls the forex market with an example. USD/HKD is allowed to trade within a range of 7.75 to 7.85. If the USD/HKD exchange rate gets too close to the upper range, the Hong Kong Monetary Authority (HKMA) will sell it, while if it gets too close to the lower range, it will buy it.
Governments and Regulators
Governments of every nation influence the forex market. They are also among the major participants of foreign exchange as they also take advantage of foreign exchange inflation to boost their economy.
Government can influence or control the foreign exchange market by making different rules and regulations related to forex trading in a particular country.
Let us understand how a government of a country influences the forex market. For example, suppose the government of the USA introduces policies that promote economic growth; as a result, the value of the US Dollar will appreciate.
Giant corporations and MNCs
Hedger and Investment managers:
Hedging is the process of protecting the position from the risk of losses. After the central banks and large commercial companies, the hedger funds are the second-biggest players in the forex market.
These managers are indulged in currency trading for accounts such as pension funds and endowments. Investment managers also participate in forex trading to buy and sell commodities. These also contribute to a price change in the forex market indirectly.
Factors that control forex trading
Besides these participants, there are some factors that act as market makers in the forex market and control the trading. It has been found that forex trading is also controlled by some macroeconomic factors, political, environmental, social, and technical analys factors. Let us have a look at these factors.
The change in the interest rate of a particular country also affects forex trading. If the interest rate of a country sees an increase, then it means that the economy of the country is growing and vice versa.
Suppose the Bank of America determines a low-interest rate. It means the country is facing tough times. As a result, it had a negative impact on US Dollars.
Political Factors and News:
News plays a very important role in forex trading. Not only this but predictions or speculations are also made due to the possibility of a news event.
Suppose there is covid outbreak in the UK. The country is facing hard times in dealing with it. As a result, the value of the Euro saw a negative impact.
The change in political factors of a country also influences forex Trading. If a country has a stable political environment then the demand for the currency increases and if not then its demand decreases.
For Example, There is Political Turmoil in the USA. The natives are protesting against the existing government in large numbers as a result the value of the Dollar is depreciated.
The value of a currency directly controls the economic status of a country. The Gross domestic product, National Income, Per capita income, poverty line, literacy rate, and other reports have a direct impact on a country’s economy.
Let us understand with an example, Suppose the inflation rate rose in Zimbabwe. So it is not the right time to invest in Zimbabwean Dollars.