[Hassam]

Currency market or what we call the foreign exchange market microstructure characteristics are not apparent when we view the low frequency data like the monthly, weekly and the daily. Foreign exchange market is divided into different geographical segments with the presence of different types of agents. FX market consists of three parts namely FX spot market, FX Forward market and the FX derivatives market. 

A large portion of the FX spot transactions go through the automated electronic order matching system that includes Electronic Brokering Services (EBS) and Reuters Dealing.  In addition to this electronic trading, over the counter FX spot market is a direct market between the banks and the brokers. So the foreign exchange market is segmented. It has a number of consequences. There can be difference in quotes. Volume tick data is also representative of that market segment instead of the whole market.

Basic spot transaction is the tick. A tick has the time stamp, bid and ask price and most of the time some information about the origin of the tick like the bank code etc. Obtaining that tick data is easy now a days. If you are using MT4/MT5 for trading, you can download tick data after writing some MQL4/MQL5 code. Just keep in mind figures can vary a little from broker to broker due to market segmentation.

FX market is a 24/5 market meaning it is a round the clock market for the week days. It gets closed late Friday and opens early Monday. So there are no limitations on the business hours and any market maker can submit new bid/ask at any time. Major centers for these currency transactions are Tokyo, London and New York. In the electronic trading market the spread is narrower as compared to the spot over the counter market. Reputation considerations are a major incentive for the market markets in the over the counter market to stick to the quoted bid/ask. Major portion of the currency transactions volume is intraday.

[Hassam]

Volume of FX short term transactions is increasing. This increase in intraday transactions is due to traders operating from different time zones. Nonfinancial corporations, hedge funds, pension funds, mutual funds and insurance companies have also shifted to short term intraday transaction from long term due to low spreads on intraday transactions. These transactions have been made possible with the development of real time information systems. In the wholesale market, dealers are not allowed to keep overnight positions. This increases intraday transactions. In one minute, we can observe 50-100 ticks easily.

Central banks still have large influence on currency market. Central banks can keep large positions open for a long time and influence the foreign exchange rate significantly. Over the counter market transactions are between number of banks and dealers. Currency market is an over the counter market. So each market maker has its own price quote. Market maker can have a preference for buying or selling. New quote published is designed to attract deal in the desired direction.

This is important for you to know. FX quotes lag behind the real time market prices. This lag can extend upto 1 minute. Some market makers intentionally try to introduce lag in the price feed. There is a large market for FX swaps independent of the FX spot and forward transactions.