The
Foreign Exchange Market is an over-the-counter (OTC) market, which means that
there is no central exchange and clearing house where orders are matched. With
different levels of access, currencies are traded in different market makers:
The Inter-bank Market - Large commercial banks trade with each other through the
Electronic Brokerage System (EBS). Banks will make their quotes available in
this market only to those banks with which they trade. This market is not
directly accessible to retail traders.
The Online Market Maker - Retail traders can access the FX market through online
market makers that trade primarily out of the US and the UK. These market
makers typically have a relationship with several banks on EBS; the larger the
trading volume of the market maker, the more relationships it likely has.
Market Hours
Forex is a market that trades
actively as long as there are banks open in one of the major financial centers
of the world. This is effectively from the beginning of Monday morning in Tokyo
until the afternoon of Friday in New York. In terms of GMT, the trading week
occurs from Sunday night until Friday night, or roughly 5 days, 24 hours per
day.
Price Reporting Trading Volume
Unlike many other markets, there is
no consolidated tape in Forex, and trading prices and volume are not reported.
It is, indeed, possible for trades to occur simultaneously at different prices
between different parties in the market. Good pricing through a market maker
depends on that market maker being closely tied to the larger market. Pricing
is usually relatively close between market makers, however, and the main
difference between Forex and other markets is that there is no data on the
volume that has been traded in any given time frame or at any given price. Open
interest and even volume on currency futures can be used as a proxy, but they
are by no means perfect.
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