Unlike other financial markets like the New York Stock Exchange, the forex market has no physical location or central exchange. The forex market is considered Over-the-Counter (OTC) or “Interbank”, because the fact that the entire market is run electronically, within a network of banks, continuously for 24 hours.
This means that the Forex market is spread all over the world without a central location. Transactions can be done anywhere, even on a mountain top though!
OTC forex market is the largest financial market and the most popular in the world, traded globally by a number of individuals and organizations or institutions. In the OTC market, market participants determine who they want to trade with depending on trading conditions, attractiveness of prices and reputation of their trade partners.
The graph below shows the ten most active currencies traded. The dollar is the currency most widely traded, some 84.9% of all transactions. The next currency is the Euro which is second to the amount of 39.1%, while the yen in third with 19.0% sum. As you can see, most of the major currencies hogging the top spot on currency trading!
One important thing to note about the forex market is the commercial and financial transactions are a part of trading volume, most currency trading is based on speculation. In other words, trading volume comes from traders who buy and sell based on daily price movements. Trading volume was brought by speculators is estimated to be more than 90%!
The scale of speculative Forex market is liquidity, volume purchases and sales occur at a particular time, is extremely high. This makes it very easy for anyone to buy and sell currencies.
From the perspective of investors, liquidity is very important because it determines how easily prices can change during a specific time period. Highly liquid market environment such as forex trading allows very large volumes to happen with very little effect on the price, or the price reaction. In addition, the depth of the market could change depending on the currency pair and time.