Every time you buy, someone else sells, and every time you sell, someone else buys. Knowing who is likely to be on the other side, and why they are trading, explains a surprising amount of what you see on a chart.
Central banks
The US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan and their peers set short-term interest rates for their currencies. They rarely trade to make money. When they act, it is to steer inflation and employment, and occasionally to support their currency directly. A single rate decision can move a currency more in a minute than it moves in a normal week.
Banks and dealers
The largest global banks quote prices to each other and to their clients all day. They are the core of the forex market and big players in bonds and commodities. Much of their business is market making: always offering a bid and an ask, and earning the spread. Alongside them sit specialist trading firms that provide liquidity electronically, often holding positions for only seconds.
Funds
Asset managers and pension funds invest other people's money for years. Hedge funds trade more actively, looking for returns in any market and either direction. Their orders are large, so they can't just click buy. They have to work orders over hours or days, and they need plenty of other traders to take the opposite side.
Companies and hedgers
An airline buys oil futures to fix next year's fuel cost. A European car maker selling in the US sells dollars forward to lock in its revenue in euros. These hedgers are not trying to predict the market. They are paying to remove a risk from their business, which makes their flows steady and largely indifferent to price.
Retail traders
That's you and me. Retail traders are by far the largest group by headcount and a small slice by volume. We trade through brokers, usually in small sizes, and our orders tend to cluster around the same obvious levels.
| Participant | Main goal | Time horizon | Cares about price? |
|---|---|---|---|
| Central bank | Price stability, employment | Months to years | Only as a policy outcome |
| Dealer bank | Earn the spread, serve clients | Seconds to days | Yes, but mostly about flow |
| Fund | Return on capital | Days to years | Yes |
| Hedger | Remove business risk | Months | Barely |
| Retail trader | Profit from price moves | Seconds to weeks | Very much |
Why this matters for your trading
Large participants need large amounts of the opposite order to fill. If a fund wants to buy a lot, it needs a lot of sellers. Where do sellers gather? Often just below obvious lows, where many traders' stop-losses sit, and just above obvious highs, where breakout traders place buy stops and short sellers place their stops.
This idea, that price is drawn toward pools of resting orders, is the foundation of the smart money concepts you'll study later. For now, just remember: where other traders put their stops is information.
Key takeaways
- Central banks, dealing banks, funds, hedgers and retail traders all trade for different reasons.
- Dealers and liquidity providers earn the spread; hedgers pay to remove risk; speculators try to profit from moves.
- Retail traders are the most numerous but trade the smallest share of volume.
- Large orders need large opposite liquidity, which often rests around obvious highs and lows.