Market Participants

The forex market is made of layers. At the top are central banks and the world's biggest dealing banks. At the bottom are retail traders like you, trading through a broker. Knowing who is on the other side of the market helps you understand prices, spreads and sudden moves.

The Market Pyramid

Forex has no central exchange, so access depends on credit and size. The bigger and more trusted you are, the closer you get to the "real" price and the tighter your spread.

Tier	Who	Typical access	Spread they pay
1. Top	Central banks, the largest dealer banks, big non-bank market makers	Trade directly with each other (interbank)	Tightest: fractions of a pip on majors
2.	Smaller banks, hedge funds, large asset managers	Through a prime broker or bank, electronic platforms	Very tight
3.	Corporations, smaller funds, retail brokers	Through their bank or liquidity providers	Moderate
4. Base	Retail traders (individuals)	Through an online broker	Widest (spread plus any commission)

Note: The pyramid shows access, not importance. Retail traders are a small slice of total volume, so they rarely move prices. The big moves come from the upper tiers.

Central Banks

A central bank manages a country's money: it sets interest rates, controls money supply and holds foreign currency reserves. Examples: the US Federal Reserve (Fed), European Central Bank (ECB), Bank of Japan (BoJ), Bank of England (BoE), Swiss National Bank (SNB), Reserve Bank of Australia (RBA) and Bank of Canada (BoC).

They affect currencies in two ways:

Interest rate decisions and guidance about future rates. This is the biggest long-term driver of most currencies.
Intervention: buying or selling their own currency directly in the market.

Example: Intervention

In 2022 and again in 2024, Japan's authorities sold US dollars and bought yen when USD/JPY was near 146–152 (2022) and above 160 (2024). Each time USD/JPY dropped several hundred pips within hours.

Tip: Always know when the next central bank meeting is for the pairs you trade. See Central Banks & Rates.

Banks and the Interbank Market

The interbank market is where large banks trade currencies with each other, mostly through electronic platforms such as EBS and Refinitiv (LSEG) Matching, or directly over private links.

These dealer banks act as market makers: they constantly quote a price to buy (bid) and a price to sell (ask), and earn the difference. They trade for clients (companies, funds, other banks) and for their own books.

Alongside banks, large non-bank liquidity providers, electronic trading firms that use algorithms to quote prices, now supply a big share of the prices on major pairs.

Info: Most global forex trading is booked in a handful of centers. London is the biggest by far, followed by New York, Singapore and Hong Kong.

Hedge Funds and Asset Managers

Asset managers (pension funds, mutual funds, insurers) trade currencies mainly because they buy foreign stocks and bonds, and then often hedge (protect against) the currency risk.

Hedge funds trade currencies to make a profit. Some bet on long economic trends ("macro" funds), others use computer models. Because they can trade very large sizes, they can push prices hard, as in Black Wednesday 1992 (see Forex History).

Corporations

Companies that buy or sell abroad need forex. They are not trying to guess the market; they are trying to reduce risk.

Example: A hedging company

A US company must pay a German supplier €1,000,000 in three months. EUR/USD is 1.0850.

Cost today:          €1,000,000 × 1.0850 = $1,085,000
If EUR/USD rises to 1.1200: €1,000,000 × 1.1200 = $1,120,000
Extra cost:          $35,000

To avoid this risk, the company signs a forward contract with its bank to buy euros at a fixed rate in three months. Its cost is locked in, whatever the market does.

Retail Traders

Retail traders are individuals trading their own money, usually small amounts, through online brokers. They mostly trade for profit (speculation), using leverage.

They trade small sizes, often micro or mini lots (see Lot Sizes).
They pay the widest spreads in the pyramid.
Regulators protect them with leverage caps and other rules (FCA in the UK, ESMA rules in the EU via regulators such as CySEC, ASIC in Australia, CFTC/NFA in the US).

Warning: Retail traders compete against professionals with better data, faster systems and lower costs. That is one reason most retail accounts lose money. Your edge has to come from discipline and risk control, not speed.

Brokers and Liquidity Providers

A broker connects you to the market. It shows you prices, takes your orders and holds your money. Behind the broker are liquidity providers (LPs): the banks and non-bank firms that supply the actual prices.

LPs stream bid and ask prices to the broker.
The broker combines the best prices and may add a markup.
You see the final price on your platform and click Buy or Sell.
The broker either takes the other side itself or passes the trade on to an LP.

Market Makers vs ECN Brokers

That last step is the big difference between broker types.

Market maker (dealing desk)

The broker takes the other side of your trade (it may hedge some of its risk).
Often fixed or wider spreads, usually no commission.
Simple for beginners, small minimum deposits.
Conflict of interest: if you lose, the broker may profit. Good regulation is essential.

ECN / STP (no dealing desk)

The broker passes your order to liquidity providers (STP) or a network where many participants trade (ECN).
Variable, very tight raw spreads plus a commission per lot.
Broker earns from your volume, not your losses.
Spreads can widen sharply during news or thin markets.

Example: Comparing costs on 1 standard lot of EUR/USD

Market maker:  1.2 pip spread, no commission
               1.2 × $10 = $12.00 per trade

ECN:           0.1 pip spread + $7.00 commission (round turn)
               0.1 × $10 + $7.00 = $8.00 per trade

Here the ECN account is cheaper, but prices and commissions vary by broker. Always compare the total cost.

Tip: Broker type matters less than regulation. A well-regulated market maker is safer than an unregulated "ECN". Learn how to check in Choosing a Broker.

Test Yourself With Exercises

Which participant usually has the biggest long-term effect on a currency?

Retail traders
Central banks
Tourists

Central banks set interest rates and can intervene directly, which drives currencies over months and years.

Why does a company usually trade forex?

To speculate on short-term price moves
To earn the spread
To pay for foreign goods and hedge currency risk

Corporations trade to pay suppliers, convert revenue and hedge, not to guess the market.

An ECN account charges 0.2 pips spread plus $6 commission per standard lot (round turn). A pip is $10. What is the total cost per lot?

$8
$6.20
$26
$2

0.2 × $10 = $2 spread, plus $6 commission = $8.

What does a market-maker (dealing desk) broker do?

Always sends every order to the interbank market
Takes the other side of client trades itself
Only trades futures on an exchange

A market maker quotes prices and takes the opposite side of your trade, which creates a possible conflict of interest.

Where do retail traders sit in the forex pyramid?

At the top, with the tightest spreads
In the interbank market
Alongside central banks
At the base, trading through brokers with the widest spreads

Retail traders have the least direct access, so they trade through brokers and pay the widest spreads.