Define market participants in the foreign exchange market?
The market participants which comprise the FX market can be categorized in five groups: international banks, non-bank dealers, bank customers, FX brokers, and central banks. International banks provide the core of the FX market. Approximately 700 banks worldwide make market in foreign exchange that means they stand willing to buy or sell foreign currency for their own account. These international banks serve their retail clients, the bank customers, in conducting foreign commerce or making international investment in financial assets which requires foreign exchange. Non-bank dealers are large non-bank financial institutions, like investment banks, whose size and frequency of trades make it cost- effective to establish their own dealing rooms to directly trade in the interbank market for their foreign exchange needs.
Mostly interbank trades are speculative or arbitrage transactions where market participants try to correctly judge the future direction of price movements in one currency versus another or try to profit from temporary price discrepancies in currencies among competing dealers.
FX brokers match dealer orders to buy & sell currencies for fee, but do not take a position themselves. Interbank traders employ a broker primarily to disseminate as rapidly as possible a currency quote to several other dealers.
Central banks sometimes intervene in the foreign exchange market in an attempt to affect the price of its currency against that of major trading partner, or a country that it "fixes" or "pegs" its currency against. Intervention is the process of utilizing foreign currency reserves to purchase one's own currency to reduce its supply and therefore increase its value in the foreign exchange market, or alternatively, selling one's own currency for foreign currency to raise its supply and lower its price.