Forex has a diverse population of participants, ranging from Japanese housewives to powerful central bankers. The objectives of the participants differ, and their individual actions may have dramatic affects on the market. It is important to remember that the forex market is an offexchange marketplace; there is no central exchange where all orders are cleared, as on the New York Stock Exchange or the Chicago Mercantile Exchange. The bulk of trading is done between trading partners on the interbank; however, small retail traders are unable to trade directly with partners on the interbank. Therefore, some participants in the forex market exist to create a marketplace for others. Currency dealers create a market for smaller retail speculators and offset their risk by trading with their larger partners on the interbank. The hierarchy of forex participants is illustrated in Figure 1.1. There is a definite food chain among forex market participants, with interbank members on top and retail speculators on the bottom.
FIGURE 1.1 The Flow of Forex Market Participants
