Forex — short for foreign exchange — is the market where one country’s currency gets traded for another’s. It’s the largest financial market in the world by a wide margin: the Bank for International Settlements puts daily turnover at roughly $7.5 trillion, which is more than every stock exchange on earth combined, trading in a single day.
There’s no single building where this happens — no floor, no bell, no ticker on a wall. Forex is over-the-counter: a global network of banks, funds, and brokers all quoting prices to each other and to traders, connected electronically, running almost continuously from Sunday evening to Friday evening. When it’s midday in Tokyo, London is just waking up and New York hasn’t gone to bed yet from the day before. The market never really closes during the week — it just moves around the planet.
What you’re actually buying and selling
Every forex trade involves a pair — you’re never buying a currency in isolation, you’re buying one and simultaneously selling another. EUR/USD is the classic example: the first currency (EUR) is the base, the second (USD) is the quote. If EUR/USD is trading at 1.0850, it means one euro buys 1.0850 US dollars. Buy EUR/USD and you’re betting the euro strengthens against the dollar; sell it and you’re betting the opposite.
That’s the entire logic of every forex trade, no matter how complex the pair looks. You’re never trading a currency’s absolute value — there’s no such thing — you’re always trading one currency’s strength relative to another.
Majors, minors, and exotics
Pairs get grouped by how much they trade and how tightly they’re priced:
- Majors always include the US dollar and belong to the most-traded economies: EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD. These carry the tightest spreads and the deepest liquidity — there’s almost always a buyer and a seller within a fraction of a pip of each other.
- Minors (crosses) pair two major currencies without the dollar in between — EUR/GBP, GBP/JPY, EUR/JPY. Slightly wider spreads, still liquid.
- Exotics pair a major currency with an emerging-market one — USD/TRY, USD/ZAR, USD/MXN. Wider spreads, sharper moves, and a lot more sensitivity to local politics and central bank surprises.
What actually moves a currency
Day to day, forex can look like noise. Zoom out and the drivers are consistent:
- Interest rate differentials. Money tends to flow toward the currency paying the higher rate, adjusted for risk — this is the single biggest driver of multi-month trends, and it’s why traders watch central bank meetings so closely.
- Inflation and growth data. CPI, GDP, employment reports — they shape what a central bank does next, which is really what the market is pricing.
- Risk sentiment. In times of stress, capital moves toward currencies seen as safe havens (the US dollar, Japanese yen, Swiss franc) and away from ones seen as risk-sensitive (the Australian and New Zealand dollars, most emerging-market currencies).
- Politics and geopolitics. Elections, trade disputes, and conflict can move a currency faster than any economic release.
How a position actually works
Forex is almost always traded with leverage — you put up a fraction of a position’s full value as margin, and the broker effectively fronts the rest. A 1:30 leverage ratio means $1,000 of margin controls a $30,000 position. This is exactly why forex can be so capital-efficient and exactly why risk sizing (see our guide on stop-loss and take-profit) isn’t optional — leverage magnifies losses just as fast as gains.
Position size is usually described in lots: a standard lot is 100,000 units of the base currency, a mini lot is 10,000, and a micro lot is 1,000. The lot size you trade determines how much each pip of movement is worth in your account currency — which is exactly what our companion guide, What Is a Pip?, walks through with real numbers.
Why it trades around the clock
Forex runs through four overlapping trading sessions — Sydney, Tokyo, London, and New York. Liquidity isn’t constant through the day: it builds as sessions overlap and thins out between them. The London/New York overlap (roughly 8am–12pm New York time) is where the majority of daily volume concentrates — it’s when the tightest spreads and the cleanest price action tend to show up, and it’s worth knowing if you’re deciding when to actually place a trade rather than just when the market happens to be open.