The Forex market is an international Over-The-Counter Market (OTC). The Forex Market is self-regulated and does not have a central exchange, headquarters or regulatory body. By not having a physical location to trade stocks, the Forex Market has significantly less overhead which reduces the need for transactional costs such as exchange fees or clearing fees. The Forex OTC market is made up of multiple participants that trade directly with each other. Within the Forex OTC market, participants belong to two groups:
- the Interbank Market and
- the Retail Market.
The Interbank Market:
The Interbank Market coordinates all Forex transactions that occur between central banks, commercial banks and financial institutions.
The Retail Market:
Unlike the interbank market, the retail market coordinates transactions made by smaller investors. These transactions are executed through Forex brokers who act as a mediator between the retail and interbank markets. The retail market consists of hedge funds, corporations, and individuals.