The Forex market for retail (retail) traders has gained overwhelming popularity after developing online trading techniques in recent years. Millions of traders join this market every year in an attempt to earn profits from currency trading, developing new strategies, and trading on long-term trends. But a question may come to mind about why there is a market for small individual traders? Is it just a way for brokers and some lucky traders to earn money? Below is a list of the jobs and roles that the Forex retail market plays:
Profit Opportunity – This is perhaps the most obvious and important function of a marketplace for retail traders. The retail market provides a profit opportunity for traders, brokers, marketers, website owners, marketing companies and many other industries engaged in online investment activities. The absence of profit opportunities would have made the Forex retail market limited to a simple exchange of currencies or cash balances physically.
Additional liquidity – this is definitely one of the most positive functions of the currency market. Although most of the individual traders in this market do not invest large amounts in Forex trading, the total money they provide is a significant part of the available liquidity in the Forex market.
Additional fluctuations – this function may appear to some to be a non-positive thing upon hearing at first sight. The participation of individual traders in the retail Forex market makes exchange rate movements less smooth and more volatile given the preference of this type of traders for short-term deals, which in turn leads to sharp interactions with the release of daily news or the emergence of technical signals. Excess volatility may seem a problem for long-term traders, but it remains a desirable tool for those who know how to take advantage of it.
Social function – Forex trading contributed to the emergence of many groups on the Internet, which is due to the desire of traders to get help from their counterparts in exchange for sharing their own experiences with the peers of Forex traders.
Technical Strategies Development – The overwhelming popularity of Forex trading, especially automated versions of trading systems, has helped to create thousands of trading strategies. Most of these strategies are based on technical analysis, which made it possible to apply them in other industries without restricting Forex trading.
Of course, this list cannot be considered exhaustive, but these functions are, in my opinion, the main features of the modern retail Forex market.
Inter bank market
The inter bank currency exchange market includes transactions between central banks, commercial banks and financial institutions.
The retail market monitors transactions between large and small investors and market traders. These transactions are executed through brokerage firms (Forex companies) that act as an intermediary between the retail market and the inter bank market. Among the participants in the retail market are hedge funds, companies and individuals.
The Forex market is a decentralized market where work is done according to a subjective system in the absence of any controlling party or institution, as it is the opposite of the stock market, where the currency market includes many players involved in different goals and interests, and these parties can be limited.