Who moves the Forex Market ?

Hi everyone,

Hope that you liked my first article on “What is Forex Trading”.  Here is the second part of the educational series on the “Who” in the Forex Market. But first of all I want to start my sharing with one of the reasons I am trading mainly on the Forex market.

I actually started trading in the Stock Markets. One of the most significant difference (note that there are many many many differences) between the stock market and the Forex market is the volume.  The volume of contracts ($$) transacted within a day.  Just for comparison, the volume traded per day in these markets are around :

  • Singapore Stock Market (USD 1B)
  • Microsoft stock trades around (USD 3-4B)
  • Apple stocks trades around (> USD 7B)
  • The S&P 500 trades > USD 160B per day
  • The Forex Market is reportedly to be trading about USD 5.3T per day.  Yes…. it is a ‘T’ which stands for Trillion

The total transaction done per day in the Forex Market dwarfs the stock markets. This means that it makes it very difficult for any one entity (fund manager/house, individuals etc) to control the Forex market. Which means that it presents a more even playing field for the participants especially the retail traders like you and me.


Let’s jump into it !!  Who do you think moves the Forex Market ??


1. The Central Banks (Interest Rates & Quantitative Easing)


The role of the Central Bank each country is to set the monetary policies to keep the growth, inflation etc in check. The natural way the Central Banks control the flow of it’s currency is by increasing or decreasing the interest rates. The general rule of thumb is that :

Increase interest rates –> increases the demand for the currency –> increases the price of the currency

Decrease interest rates –> lowers the demand for the currency –> decrease the price of the currency.

Note : there are many factors that affects the economy and currency of a country. Many books have been written about this, so we will just stick to the simple general rule of thumb here in this article.


In recent years, due to the economic crisis in the past decade or so, Central Banks also resort to Quantitative Easing (QE) to manipulate the currency. Again in short, this is how it generally works

Quantitative Easing –> introduce new money supply –> dilutes the value of the currency –> decrease the price of the currency

The opposite is Monetary tightening by the Central Banks and it affects the currency in the opposite manner.


2. Commercial Banks & Hedge Funds (Trading Desks)

Many Commercial Banks & Hedge Funds run their own currency trading desks. Traders at the desks will trade the Forex market to generate profits for the company.  It is because of the sheer size of the funds being managed, as the portfolio managers takes up new positions or when they reduce their existing positions.  They will be able to move the Forex market from the sheer size of their transactions.


3. Importers / Exporters (Payments)

These international importers and exporters do move the markets. For example, a car importer in Europe bringing in Japanese cars and say the payment term is in Japanese Yen (JPY). The importer will naturally have to convert their Euro Dollars (EUR) to Japanese Yen (JPY) to make the payment for the imported cars.  This will definitely affect the EURJPY pair.

With the globalisation of economies, we have goods moving all over the world and the corresponding currency pairs will move too.


4. Business (Repatriation)  

I believe the best example to use to explain this point would be MacDonalds.  You can probably see the golden arches at every corner of major streets all around the world. When it comes to the Financial reporting period, the profits all around the world will be repatriated to the US.  Hence this will affect the US Dollars.

One phenomenon that we used to see in the past during the (Dec to Mar) period is the strengthening of the Japanese Yen.  This is the period where most Japanese companies repatriate their profits to HQ. I guess we see less of this phenomenon these days is because the companies are spreading our the repatriation process throughout the whole year, so as to avoid the spike in the Yen.  Sorry guys…. sad to say that this trading opportunity/strategy on the JPY has already vanished.


5. Business Travelers / Tourists (Spending)

When you travel and spend say…. 10k during your holidays. 10k might seem small to the overall Forex market but there are tens of millions of travelers per year, so these numbers do add up.

Example : During the financial crisis in Europe, we saw Greece nearing bankruptcy. It made everything in Greece cheap and many tourist took the opportunity to travel to Greece.

Hint-Hint : Which this Brexit saga on going, do you think that it is time to go for a holiday to the UK ?  Cheap Cheap GBP  😉


6. Individual Speculators (Traders)

This category of people covers the retail traders like you and me.  With an average account size of $10k, multiply by the leverage given by the brokers and again multiply by the millions of retail traders in the world. It does make up a significant amount of trades in the market.  So don’t underestimate the power of the little guys.

Anyways….. our focus on trading here is not to challenge the big boys. They have the funds to invest into the fastest computers and the most complicated algorithms to improve their trades.  We as retail traders should not challenge the big boys in their playing field.  We just need to focus on our own playing field and consistently profit from it.


This is all I have for this article, hope that this gives you a better insight into “Who moves the Forex markets”.

Stay tuned for my next educational post on the “How” in the Forex Market.


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