by 
The Curious Bag
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Spot Forex trading takes place through Over the Counter (OTC) markets, where participants trade directly with each as opposed to through a trading exchange, in which the exchange acts as an intermediary of trades. However, Forex futures and options trading occurs through physical exchanges.
Markets
OTC trading involves participants who are market makers for individual currency pairs and offer a best price they are willing to buy and sell at. When the highest matches the lowest offer, a sale takes place.
Interbank Trading
The largest OTC, in value by dollar volume, is the interbank market. It is comprised of financial institutions that are linked electronically and continually place their best bid and ask orders to each other.
Interbank Trading
Along with their proprietary accounts, interbank participants also can enter orders into the interbank market on behalf of their clients. These orders appear as if they are coming from the interbank market maker and allow anonymity for their customers.
Retail Market Making
Retail market making, also known as dealing, is the process in which a retail Forex firm also acts as the market maker for all of its customers orders.
Futures Trading
Forex futures are traded through futures exchanges. The largest regulated Forex futures trading exchange is the Chicago Mercantile Exchange, with more than $100 million in daily Forex volume.
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