When you trade, you share the price with banks, pension funds, companies and thousands of other individuals. Each group trades for a different reason and on a different timescale.
Knowing who they are explains why price behaves the way it does, and why it sometimes moves without any news.
Retail traders are individuals trading their own money through a broker. There are millions of them, but their orders are small compared with institutions. Individually they rarely move a market. Together, crowd behaviour can still matter, especially in smaller markets.
Banks, hedge funds, asset managers and pension funds move very large amounts of money. One pension fund rebalancing its portfolio can place orders worth hundreds of millions.
Orders that large can move price on their own, which is why big moves often cluster around the hours when institutions are most active.
Market makers continuously quote a price to buy and a price to sell, so there is always someone to trade with. They earn the small difference between the two, called the spread.
Speculators trade to profit from price changes. They take on the risk that other participants want to get rid of, and in doing so they add liquidity: more buyers and sellers at more prices.
Most retail traders are speculators, whether they call themselves that or not.
Hedgers trade to reduce risk, not to profit from it. An airline worried about rising fuel costs can buy oil contracts today. If oil rises, the gain on the contracts offsets the higher fuel bill.
Arbitrageurs look for the same asset trading at slightly different prices in two places. They buy where it is cheaper and sell where it is dearer.
The profit per trade is tiny, but the effect matters: their activity keeps prices aligned across markets.
Each group depends on the others. Hedgers need speculators to take on the risk they are shedding. Everyone needs market makers to provide a price, and arbitrageurs keep those prices consistent.
When one group steps back, for example over a holiday, liquidity drops and prices move more erratically.
Different players, different motives, one price.
