The foreign exchange market (forex or FX) is an unregulated global market in which trading does not occur on an exchange and does not have a physical address of doing business. Unlike equities, which are traded through exchanges worldwide, such as the New York Stock Exchange or the London Stock Exchange, foreign exchange transactions take place over-the-counter (OTC) between agreeable buyers and sellers from all over the world. Because this network of market participants is not centralized, the exchange rate of any currency pair at any one time can vary from one broker to another.
The main market players are the largest banks in the world, and they form the exclusive club in which most trading activities take place.This club is known as the interbank market. Retail traders are unable to access the interbank market because they do not have credit connections with these large players. This does not mean that retail traders are barred from trading forex; they are able to do so mainly through two types of brokers: markets makers and electronic communications networks (ECNs). In this article, we'll cover the differences between these two brokers and provide insight into how these differences can affect forex traders.
There must be someone at the other end of the transaction, whenever a pair of currencies is bought or sold. It's very unlikely that the investor will always find someone who is interested in buying and selling the same two currencies at the same amount, and at the same time. Hence, the question remains, How is it possible that the Forex investor can buy or sell at any time? This is where the Forex market makers come in.