Forex (short for foreign exchange, also called FX) is the market where currencies are swapped for one another. Every time a company pays a foreign supplier, a tourist changes money, or a central bank adjusts its reserves, a forex transaction happens.
It is the largest financial market in the world. The Bank for International Settlements’ 2022 survey measured average turnover of about 7.5 trillion US dollars per day.
There is no single exchange
Unlike shares, which trade on exchanges such as the NYSE, forex is over-the-counter (OTC): banks, brokers and other institutions trade directly with each other through electronic networks. Because those institutions are spread across time zones, the market follows the sun:
| Session | Approximate hours (UTC) | Most active currencies |
|---|---|---|
| Sydney / Tokyo | 22:00 – 09:00 | AUD, NZD, JPY |
| London | 07:00 – 16:00 | EUR, GBP, CHF |
| New York | 12:00 – 21:00 | USD, CAD |
Because the sessions follow one another, the market is open around the clock from Sunday evening (when Sydney opens) to Friday evening (when New York closes) — roughly 24 hours a day, five days a week. It closes at weekends.
The overlap between London and New York is usually the busiest — and often the cheapest — time to trade.
Reading a currency quote
Currencies always trade in pairs. In the quote EUR/USD 1.1600:
- EUR is the base currency — the one you are buying or selling.
- USD is the quote currency — the one the price is expressed in.
- 1.1600 means one euro costs 1.16 US dollars.
If you think the euro will strengthen against the dollar, you would buy EUR/USD. If you think it will weaken, you would sell.
Brokers show two prices: the bid (what you can sell at) and the ask (what you can buy at). The gap between them is the spread, and it is one of the main costs of trading.
Spread = Ask Price − Bid Price1.1602 − 1.1600 = 0.0002 = 2 pips. You always buy at the higher price and sell at the lower one, so a new trade starts 2 pips down — that gap is the broker's spread.Why currency prices move
Exchange rates move with supply and demand, which in turn are driven by:
- Interest rates — higher rates tend to attract capital into a currency.
- Inflation — persistently high inflation erodes a currency’s value.
- Economic data — employment, growth and trade figures change expectations.
- Risk sentiment — in a crisis, money often flows to the US dollar, Japanese yen and Swiss franc.
Reading these drivers is the subject of fundamental analysis, which we plan to cover in a future lesson track.
Who trades forex?
Central banks, commercial banks, multinational companies, investment funds and — a small share of the total — retail traders using online brokers. Retail traders usually trade CFDs or spot forex on margin, which means using borrowed money. That is where most of the risk lies, and it is the subject of our lesson on leverage and margin.
Before you trade: most retail accounts that trade leveraged forex and CFDs lose money — ESMA’s 2018 product intervention measures cited 74–89% of retail CFD accounts losing money. Learn how pip value, leverage and position size work first — the next lessons cover each one with worked examples.