How Banks Dominate Forex
Banks play a central role in the forex market, controlling the majority of currency trading worldwide. The forex market is not like stock markets with centralized exchanges; it’s an over the counter (OTC) market, meaning trades occur directly between participants, and banks act as market makers, providing liquidity and setting bid-ask prices.
Large international banks like JPMorgan Chase, Citi, and Deutsche Bank handle trillions of dollars daily, trading on behalf of clients, hedge funds, corporations, and even central banks. Their massive capital allows them to influence exchange rates and absorb market fluctuations that smaller traders cannot. Banks also use sophisticated algorithms and high-frequency trading to optimize profits and manage risk, giving them a huge advantage over retail traders.
Additionally, banks provide services like forex hedging for corporations to manage international payments, making them essential for global trade. They also facilitate the interbank market, where currencies are exchanged at wholesale rates, setting the foundation for prices that retail traders see through brokers.
In short, banks dominate forex because of their capital, expertise, and central role in global finance. While retail traders participate in the market, it’s the banks that move the biggest volumes and shape the trends in the world’s largest financial market.
