Let's delve into how forex trading works and what is traded on the forex. Forex is unlike the stock markets, which operate through exchanges like the NYSE and NASDAQ. It operates electronically between counterparties on a decentralized and over-the-counter (OTC) basis.
The large financial institutions and banks trade with each other on the interbank market serving as market makers providing bids and ask. Hedge funds, prime brokers and institutional traders actively participate in the forex market. Forex brokers connect retail traders to the forex, including the interbank market. They facilitate trades for the retail trader and collect their fees from the spread.
Forex brokers may have slightly different prices from each other due to individual broker spreads or commissions baked into the prices. The forex market is open around the clock as different regions open up for active trading when others close based on the time zones operating during business hours.
Forex used to be a realm exclusive to large banks and financial institutions. In the recent millennium, retail traders knew forex trading's meaning. With the advent of the internet, it has become accessible to retail traders through forex brokers. There are countless retail traders in the forex market due to low barriers to entry. Unlike trading the U.S. stock market, which requires at least $25,000 minimum capital under its pattern day trader (PDT) rules, forex accounts usually have a smaller minimum, from $50 up to $5,000, depending on the broker, which has enticed many retail traders to try their hand at the forex markets. It has also led many traditional brokers to offer forex trading as an option for their customers.