Forex Market
The forex market is the global market for exchanging currencies, and the largest financial market by trading volume. It has no central exchange, trades around the clock from Monday to Friday, and quotes currencies in pairs such as EUR/USD.
Every time a company pays a foreign supplier, a tourist changes money or a fund buys foreign shares, currencies change hands. Together these flows form the foreign exchange (forex, or FX) market. Traders join in to profit from moves in exchange rates. This entry explains how the market is organised, how quotes and profits work, and why leverage makes forex trading so risky for individuals.
- Category
- Trading Basics
- Reading time
- 4 min
- Also called
- Forex, Foreign exchange market, Currency market
- Updated
Forex in plain words
An exchange rate is simply the price of one country's currency in another's, and forex traders buy and sell currencies betting on how those rates will move.1
It is by far the biggest market: global FX trading averaged $9.6 trillion a day in April 2025, and the US dollar was on one side of 89% of all trades.2
Retail forex usually happens off-exchange, directly with a broker or dealer, so you depend on that firm to pay out and to let you close positions.1
How a forex trade works, step by step
Pick a pair
Currencies are quoted in pairs with three-letter codes, such as EUR/USD. See Base and Quote Currency.
Read the quote
You buy at the ask and sell at the lower bid; the gap is the spread.1 See Bid-Ask Spread.
Choose a size
Trades are sized in lots. See Lot Size.
Hold or roll
Positions kept overnight are charged or credited interest. See Overnight Financing Fee.
Close the trade
Profit or loss is the rate change times the position size, in pips.
Worked examples
Example 1 — A winning EUR/USD trade
+$80You buy 10,000 euros against dollars at 1.0800 and sell at 1.0880.
| Move | 1.0880 − 1.0800 = 0.0080 (80 pips) |
| Profit | 10,000 × 0.0080 = $80 |
Buying the currency that rises earns a profit; selling it would have lost the same amount.1
Example 2 — The spread is a cost
−$2EUR/USD is quoted 1.0800 / 1.0802. You buy 10,000 euros at the ask and immediately sell at the bid.
| Spread | 1.0802 − 1.0800 = 0.0002 (2 pips) |
| Cost | 10,000 × 0.0002 = $2 |
The bid-ask spread is a built-in trading cost, and “commission-free” dealers may simply widen it.1
Example 3 — Leverage turns a small move into a big loss
−60% of depositWith $1,000, you open a $30,000 position (30:1 leverage). The rate moves 2% against you.
| Position | $30,000 |
| Loss | 2% × $30,000 = $600 |
| Share of your deposit | $600 ÷ $1,000 = 60% |
Leverage magnifies small currency moves, and you can lose your whole deposit or more.1
Forex vs the stock market
| Aspect | Forex | Stock market |
|---|---|---|
| Where it trades | Over the counter, worldwide | On exchanges |
| Hours | Around the clock on weekdays | Set session hours. See Market Hours |
| What you trade | Currency pairs | Company shares |
| Typical leverage | High | Lower. See Margin |
Who uses the forex market
Hedging
Companies use FX swaps and forwards to protect against currency moves.2
Trade and travel
Paying for imports, exports and spending abroad.
Speculation
Traders bet on rate moves. See Day Trading and Carry Trade.
Central banks
Managing reserves and sometimes intervening. See Currency Intervention and Pegs.
Advantages and disadvantages
Advantages
- Huge and liquid, especially in major pairs.
- Trades almost continuously on weekdays.
- Can profit from rising or falling currencies.
- Small accounts can trade in micro lots.
Disadvantages
- High leverage can wipe out an account quickly.
- Off-exchange trading depends on the dealer's honesty and solvency.
- Costs hide in spreads and overnight fees.
- Rates jump on central-bank and economic news.
Going deeper
Read as far as you need. Each level builds on the one before it.
The most traded currencies
Beginner
After the dollar, the most traded currencies are the euro, with a 28.9% share, and the yen at 16.8%; sterling followed at 10.2% (shares add up to 200% because each trade has two currencies).2 See Majors, Minors and Exotics.
Spot, forwards and swaps
Intermediate
Most FX volume is not simple spot trading: FX swaps were the biggest instrument at about $4 trillion a day in 2025, while spot made up 31% and outright forwards 19% of turnover.2 Swaps and forwards are mainly hedging tools.
Your counterparty is the dealer
Advanced
In retail off-exchange forex there is no clearing house guaranteeing trades, and rules on how dealers price and charge are limited.1 Check the firm's regulation before depositing. See Broker Regulation and Dealing Desk and No Dealing Desk.
Common mistakes
Using maximum leverage
A 1% move at 50:1 is half your margin.
Ignoring the spread
Frequent small trades pay it every time.
Trading through big news blindly
Rates can gap on rate decisions and data. See Economic Calendar.
Choosing an unregulated broker
Your money depends on that firm.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Forex is the global market for exchanging currencies.
- It trades about $9.6 trillion a day, mostly involving the dollar.
- Currencies are quoted in pairs with a bid, an ask and a spread.
- Leverage magnifies both gains and losses.
- Retail forex is off-exchange, so the broker matters.
Frequently asked questions
Is forex open 24 hours?
Who sets exchange rates?
Is forex trading risky?
Further learning
- Pip
How currency moves are measured.
- Lot Size
How forex trades are sized.
- Trading Session
When the market is busiest.
- Carry Trade
A classic forex strategy.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Investor.gov (SEC). Foreign Currency Exchange (Forex) Trading For Individual Investors (opens in a new tab) Checked .
- Bank for International Settlements. Global FX trading hits $9.6 trillion per day in April 2025 (Triennial Survey press release) (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.