What Is Forex? How the Currency Market Works

Forex (foreign exchange, or FX) is the global market for exchanging one currency for another. It’s the largest financial market in the world, trading trillions of dollars a day, and it runs 24 hours a day, five days a week.

How forex works

Currencies trade in pairs. When you buy EUR/USD, you buy euros and sell US dollars at the same time. A price of 1.0850 means one euro costs 1.0850 dollars. If the euro strengthens against the dollar, the price rises.

Unlike stocks, forex has no central exchange. It’s an over-the-counter market: banks, brokers and other institutions trade directly with each other through electronic networks around the world.

Key terms

Pip: the standard unit of price movement, 0.0001 for most pairs and 0.01 for yen pairs. See what is a pip.
Lot: the trade size. A standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000.
Spread: the gap between the buy and sell price, which is the main cost of a trade. See bid-ask spread.
Leverage: retail forex is usually traded on margin. See what is leverage.

Who trades forex

Banks and dealers make up most of the volume, alongside companies paying for goods abroad, investment funds, central banks and individual traders. According to the Bank for International Settlements’ Triennial Survey, the US dollar is on one side of the large majority of all trades, and EUR/USD is the most traded pair. See the full list of major currency pairs.

When forex trades

The market opens on Sunday evening (New York time) as the Sydney session starts, and runs continuously through the Tokyo, London and New York sessions until Friday evening. Activity peaks when London and New York overlap. See live session times on our forex market hours clock.

What moves currencies

Interest rates and central bank decisions (such as the Fed), inflation and jobs data (CPI and NFP), economic growth, trade flows and risk sentiment all affect exchange rates.

Educational explanation only. ChartWatch is independent and doesn’t give trading or investment advice. Trading carries a risk of loss.

FAQ

What is forex trading?

Buying one currency and selling another at the same time, in pairs such as EUR/USD, aiming to profit from changes in the exchange rate.

How big is the forex market?

It's the largest financial market in the world, with trillions of dollars traded each day according to the Bank for International Settlements.

When is the forex market open?

24 hours a day from Sunday evening to Friday evening (New York time), moving through the Sydney, Tokyo, London and New York sessions.

Is forex traded on an exchange?

Mostly not. Spot forex is an over-the-counter market where institutions trade directly with each other. Currency futures do trade on exchanges such as CME.

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