Institutional dominance in the 2026 forex market

The institutional dominance in the forex market

The global foreign exchange market operates as a decentralized, over-the-counter (OTC) network of high-frequency transactions. According to the Bank for International Settlements (BIS) Triennial Central Bank Survey, average daily trading volume reached $9.6 trillion in April 2025.

At the core of this structure are commercial banks, acting as the primary liquidity providers and market makers. Commercial banks trade for two main reasons: managing their own risk through hedging and generating profit through speculative proprietary trading. They also provide the infrastructure that allows corporate, institutional, and retail clients to engage in currency exchange.

Institutional advantage stems from a comprehensive view of capital flows across diverse participant types. Commercial banks monitor transactions involving hedge funds, multinational corporations, and central banks, which helps them anticipate shifts in liquidity and efficiently act as market makers.

Recent performance and revenue drivers in Q1 2026

Financial results released in mid-April 2026 highlight the strength of institutional trading desks amid market volatility. Major U.S. banks reported robust revenue growth in their markets businesses during the first quarter of 2026.

• JPMorgan Chase reported Markets revenue of $11.6 billion, up 20% year-over-year. Fixed income markets revenue rose 21% to $7.1 billion, while equity markets revenue increased 17% to $4.5 billion.
• Citigroup posted Markets revenue of $7.2 billion, up 19% year-over-year, with equity markets contributing strongly (growth approaching 39-40%).
• Wells Fargo recorded a 19% increase in Markets revenue within its Corporate and Investment Bank, with gains across most asset classes.

This revenue growth was driven by heightened volatility, which typically widens bid-ask spreads and increases trading volumes from institutional clients adjusting portfolios.

Currency fluctuations and central bank influence

Market movements in mid-April 2026 illustrated the forex market's sensitivity to central bank communication. On April 15, 2026, the USD/JPY pair weakened past 159 after Bank of Japan Governor Kazuo Ueda provided no clear hawkish guidance on the future path of interest rates. In the absence of strong signals for near-term tightening, the yen struggled to maintain momentum.

At the same time, the EUR/USD pair traded near 1.180, supported by a general softening of the US dollar.

Commercial banks play a dual role: they react to central bank policies while participating in open market operations. By buying and selling government securities, they influence money supply and interest rates, which in turn affects liquidity conditions and their own lending activities.

The shifting footprint of retail participants

Retail traders - individuals speculating on price movements or hedging personal exposures - represent a smaller segment of the overall market. Most retail activity occurs through brokers offering leverage, allowing control of larger positions with limited capital. Retail traders typically focus on short timeframes and small price increments (“pips”), with activity often spiking around major economic events such as central bank decisions.

Retail participants do not interact directly with major investment banks. Instead, investment banks serve as liquidity providers to wholesale entities (e.g., prime brokers and retail brokers), who then pass liquidity downstream to individual traders. While the collective volume from retail can influence short-term dynamics, institutional players continue to dominate the market structure.

Market structure and liquidity dynamics

The OTC nature of the forex market means there is no single central exchange or controlling body. The system is shaped by the relative strength and activity of its largest participants. Institutional liquidity acts as the primary stabilizer, enabling large orders to be executed with minimal slippage.

Data from the New York Fed's Survey of North American Foreign Exchange Volume shows that total average daily volume in OTC foreign exchange instruments in North America reached $1,303.2 billion in October 2025. This represented a 5.4% decline from April 2025 but an 8.9% increase year-over-year. Turnover among “Reporting Dealers” (primarily commercial banks) saw a modest 3.1% decline since April 2025, reflecting evolving institutional strategies in a changing interest-rate and volatility environment.

High liquidity generally reduces transaction costs, but it does not guarantee stability - rapid shifts in institutional sentiment can still cause volatility spikes in response to geopolitical or economic developments.