What is forex? The currency market explained

Forex (short for foreign exchange, also called FX) is the market where currencies are swapped for one another. Every time a tourist changes euros into dollars, a company pays a supplier abroad or a central bank adjusts its reserves, the forex market is involved. It is the largest financial market in the world: according to the Bank for International Settlements, global FX turnover reached about $9.6 trillion per day in April 2025.

Currencies trade in pairs

You never buy "the euro" on its own. You buy one currency against another. In EUR/USD = 1.0850:

• EUR is the base currency (the one you are buying or selling).
• USD is the quote currency (what the price is measured in).
• The price says 1 euro costs 1.0850 US dollars.

If you buy EUR/USD you profit if the euro strengthens against the dollar (the price rises). If you sell you profit if the euro weakens (the price falls). Being able to profit from falling prices is normal in forex, not an exotic trick.

Majors, minors and exotics

Beginners usually do best on the majors: costs are lowest and price action is cleaner.

When is the market open?

Forex trades 24 hours a day, five days a week, passing from one financial centre to the next:

• Sydney / Tokyo (Asian session): quieter, except for yen and Australian dollar pairs.
• London: the busiest session; big moves often start here.
• New York: high volume, especially while London is still open (the overlap, roughly 15:00–19:00 Greek time).

The market closes on Friday evening and reopens on Sunday night. Prices can "gap" over the weekend if news comes out.

What moves currencies?

• Interest rates: money flows towards currencies that pay more. Central bank decisions (Fed, ECB, Bank of England) are the biggest events of the month.
• Economic data: inflation (CPI), jobs (NFP), growth (GDP). See trading the news.
• Risk sentiment: in fear, traders buy "safe havens" like the US dollar, the Swiss franc and the Japanese yen.

How retail traders trade forex

Most private traders don't exchange real currency. They trade CFDs or spot forex through a broker, on platforms like MetaTrader 5. You choose a position size in lots (what is a lot?), measure moves in pips (what is a pip?) and usually use leverage (leverage and margin).

Leverage works both ways. In the EU, retail traders are limited to 1:30 on major pairs because most retail CFD accounts lose money.

Where to start

1. Open a demo account and watch EUR/USD for a week during the London session.
2. Learn to size a trade from your risk before you ever click Buy: the 1% rule.
3. Put a stop loss on every trade: what is a stop loss?

Our free ebooks walk you through opening an account and setting up MetaTrader 5: get them here.