Are we really trading spot forex?

I read a while back on another forum that we are not actually trading spot forex in the sense that there is no simultaneous buying of one currency and selling of another. We are really just trading CFDs that mirror the currency movements. Haven't thought much about this until recently again. I would like some clarification as to how this actually works? If we are really just trading CFDs that mirror the currency movements, what about institutions and the government? aren't they actually (physically?) converting currencies?

This article mentions contracts, but not very specific: http://www.forexrealm.com/trading-pr...x-trading.html

This may help answer your question: http://www.bis.org/publ/rpfx13fx.pdf from last year, from a retail trading perspective, and probably a more honest answer than an anonymous forum reply or broker answer.

'other financial institutions' ie counterparty OTC.