market movers – Forex Academy

Introduction

In the previous lesson, we discussed how the forex market is structured. Now, it is time to take this topic a little deeper. In this article, let’s understand the Forex market movers. The participants of the market during the late 20th century were quite less. But, as time passed by, the number of participants grew exponentially. The big players got bigger, and the small retail traders found their way into the market. And at present, the forex market is no less than an ocean.

The participants of the Forex market

The Forex is approximately a $5 trillion market. This kind of liquidity comes from several types of traders. Some of them come with large pockets, some with medium-sized capital and the rest to make a quick buck. Now, let’s get an insight into all of these participants.

Central Banks

Central Banks play a crucial role in the Forex market. The interest rate policies of the Central Banks influence the exchange rates to a large extent. They are also responsible for Forex fixing. They take action in the Forex market to stabilize and pump in the competitiveness of that country’s economy. Moreover, they participate in the currency exchange to manage the country’s foreign exchange reserves.

Commercial Banks

Many assume that commercial banks come under the central banks’ category. However, this isn’t true. The commercial banks are the most active participants in the FX market. They’ve got the biggest pockets out there and trade with considerably large quantities of lots. Due to this, they partially determine the exchange rates of the currencies as well. About 100 to 200 banks around the world assumed to ‘make’ the market. The commercial banks facilitate the services to the retail clients for conducting foreign commerce and making an international investment. The commercial banks include large, medium, and small-sized banks, and as a whole, these banks are referred to as the interbank market.

Foreign Exchange Brokers

Forex brokers also have their significance in the market. They are agents who facilitate trading between two parties. Note that these brokers are just matchmakers and are not really involved in determining the exchange rates of currencies. Brokers constantly keep an eye on the exchange rates and try matching the price of buyers and sellers to execute a trade.

Multi-National Companies

The MNCs are major participants in the FX markets, who do not come from the banking side. These companies usually participate in the forward or the futures markets. Their participation comes from the cash flow between different countries. MNCs typically set up contracts to pay or receive a fixed amount of foreign currency in the future date.

Retailers

The exponentially growing market in the Forex is the retail market. The retailers include smaller speculators and investors. Speculators, unlike the participants mentioned above, are not in genuine need of foreign currencies. Their motive from the market is simple. They buy or sell with a hope that the price will move in their favor and can end up with a profit. They get their orders placed by brokers who act as an intermediary between buyers and sellers. The power of retailers to move the market is minimal because their contribution to the volume traded in Forex is less than 6% of the total Forex volume.

These are the different participants who make up the entire Forex market. In the upcoming lesson, we shall open up more about the Forex brokers. Don’t forget to take the below quiz to check your learnings.

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In terms of fundamental analysis on decision-making how do we avoid market traps? well we have a legendary British American investor and professor here Benjamin Graham. He will give us some fantastic insight through the market, he has a very famous quote “observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities our times of favorable business conditions”.

Another’s indicative of doing your due diligence. As a fundamental analyst and making those well informed decision making, and trades particularly when we are in times of very strong economic boom. A lot of traders simply believe prices will still go up, no matter what the asset they decide to trade, or no matter what the equity they decide to trade. That is not the case, certainly we do our due diligence for each particular fundamental trade, in each particular asset. Our market in question as fundamental analysts, it is essential we focus our decision-making, on all fundamental news affecting the price of the asset. We must never rely on any one variable, and that’s certainly the point we’d like to make there, how do we avoid these necessary and are these very common market traps? Particularly as beginner traders, well a few points to look out for, avoid trading with the dumb money. And this is indicative of actually looking for good trading opportunities as well, but we try and trade with this smart money in reverse. We do not want to be the last person buying a very strong move to the upside, or the last person selling a very honest and weak move to the downside.

So avoid trying to jump in and chase the markets, and obviously that leads on to a second point, being the dumb money. Being the last rat to jump ship when the ship is going down, is not the wisest trading decision. Indeed always protect your trade with the stop-loss. Now we will have plenty of lessons on risk management coupled, protection is absolutely key empowerment to your trading success in terms of avoiding those market traps. Always protect your trade with the stop-loss, do monitor the markets at all times and a key point here is do not become a victim of overconfident analysis. So again relating to the point of the webinar, fundamental analysis and decision making, well obviously we need to monitor the markets and that is one downside. I would certainly say true fundamental analysis, do a lot of research, a lot of due diligence in formulating trading decisions. And because they put a lot of time and research into the market they cannot take a looser way in the market proves them wrong. So do not become a victim of overconfident analysis and always monitor the markets, learn to combine the fundamental decision-making with technical decision-making. That lends itself to always trying to stack the odds in your favour as a fundamental and technical trader, to heighten your probability of successful outcome.