Market participants (retail, institutions, market makers)

When you place a trade, you are entering a market alongside central banks, hedge funds, pension funds, market makers, and millions of other individuals. They all have different goals, different time horizons, and wildly different amounts of money. Knowing who they are — and what they want — explains a lot of price behaviour that otherwise looks random.

What you'll learn

• The main groups of market participants and what each is trying to achieve
• How market makers earn money and why they matter to your fills
• How large institutions execute big orders — and why that leaves footprints on the chart
• How retail brokers work, and who is on the other side of your trade
• Where a small retail trader genuinely has an advantage

1. Retail traders

Who they are: individuals trading their own money — from a laptop, a phone, or a trading bot.

• Trade relatively small size compared with institutions
• Usually access the market through a broker, often with leverage
• Time horizon ranges from seconds (scalping) to months (swing and position trading)

Individually, retail traders cannot move major markets. Collectively, they matter — especially in smaller stocks and crypto, where retail activity can be a large share of volume.

2. Institutions

"Institutions" covers several very different players:

Notice that many institutions are not trying to predict the next candle. A corporation hedging currency exposure or a pension fund rebalancing will buy or sell regardless of your chart pattern. This "non-speculative" flow is a big reason markets don't always behave the way textbook setups suggest.

How big orders get executed

An institution that needs to buy a very large position can't simply press "buy" — it would walk the order book (see the previous lesson) and push price sharply against itself. Instead, large orders are typically:

• Split into many smaller orders over minutes, hours, or days
• Executed by algorithms that target an average price (for example, the day's volume-weighted average price, VWAP)
• Placed around periods of high liquidity, when big size can be absorbed with less impact

3. Market makers and liquidity providers

Market makers continuously quote both a bid and an ask. Their job is to provide liquidity — to always be willing to trade, so others can get in and out.

Worked example: earning the spread

(Illustrative quotes.)

A market maker quotes EUR/USD at 1.0850 bid / 1.0851 ask.

1. A seller hits the bid: the market maker buys at 1.0850.
2. A moment later, a buyer lifts the ask: the market maker sells at 1.0851.
3. The market maker has earned 1 pip without needing to predict direction.

The risk: if price moves sharply between steps 1 and 2, the market maker is stuck holding a position (inventory risk). That's why market makers widen their spreads when volatility rises or liquidity dries up — for example around major news releases.

4. Your broker: who is on the other side of your trade?

In retail forex and CFDs, your order goes to your broker first. Brokers generally handle client orders in one (or a mix) of two ways:

Neither model is automatically good or bad. What matters most is that your broker is properly regulated, transparent about costs, and executes your orders fairly.

5. Where retail traders have an edge

You cannot out-muscle a bank. But you do have advantages institutions don't:

• You don't have to trade. An institution with a mandate must be in the market. You can sit out until conditions suit you.
• Your size is small. You can enter and exit without moving price — institutions can't.
• You choose your timeframe. You can wait for high-quality setups instead of executing a client order today.
• You have no one to answer to. No quarterly reports, no forced rebalancing.

The traders who survive tend to lean into these advantages — patience, selectivity, and disciplined risk — rather than trying to compete on speed or information.

Common beginner mistakes

• Blaming "manipulation" for every stop-out. Price often moves to areas where many stop orders sit because that's where liquidity is — large players need someone on the other side of their orders.
• Ignoring non-speculative flow. Month-end rebalancing, corporate hedging, and central-bank policy can move price regardless of technical setups.
• Choosing a broker on bonus offers alone. Regulation, execution quality, and total trading cost matter far more.
• Trying to trade like an institution. Copying institutional size, speed, or frequency without their infrastructure is a losing game.

Key terms

Practice

1. Look up your broker (or the demo broker you're using). Find out which regulator licenses it and whether it describes itself as a market maker, STP, or ECN.
2. Find the broker's contract specifications for EUR/USD and XAU/USD: typical spread, commission per lot, and overnight swap rates.
3. Open a chart and watch the spread on EUR/USD in the minute before and after a scheduled economic release (check an economic calendar for the time). Note how much it widens.

Quick recap

• Markets contain retail traders, banks, funds, corporations, central banks, and market makers — each with different goals.
• Many institutions trade for reasons that have nothing to do with chart patterns.
• Big orders are split and executed over time, which helps explain persistent trends.
• Market makers earn the spread and widen it when risk rises.
• Retail traders can't compete on size, but can win on patience, selectivity, and discipline.