What Is the Forex Market?
A plain-English introduction to the foreign exchange market: what it is, who trades it, when it is open, and why prices move.
The foreign exchange market (forex, or FX) is where one currency is traded for another. Every time a bank settles an international payment, a company pays an overseas supplier, or a traveller buys local cash at the airport, a currency exchange happens. Stitched together, all of that activity forms the largest financial market in the world.
It is genuinely vast. According to the Bank for International Settlements’ 2022 survey, more than 7 trillion US dollars changes hands across the FX market every single day. For comparison, that dwarfs the daily turnover of the world’s stock markets combined.
There is no single “forex exchange”
This is the first thing that trips up newcomers. Stocks trade on exchanges (the New York Stock Exchange, the London Stock Exchange): physical or electronic venues with one central order book. Forex has nothing of the kind.
Instead, the FX market is over-the-counter (OTC) and decentralised. It is a global network of banks, brokers, and electronic trading systems dealing directly with one another. There is no single official price for, say, the euro against the dollar; there are many closely-related prices quoted by many institutions at once. They stay close together because anyone quoting a price far from the rest would immediately be traded against until it converged.
A practical consequence: when you see a EUR/USD price on a retail trading platform, you are seeing your broker’s price, derived from the rates its liquidity providers stream to it. It will be very close to everyone else’s, but it is not handed down from a central authority.
Who actually trades it
The market is layered, and the layers matter:
- Banks and major financial institutions sit at the core. They handle the largest volumes, both for clients and for themselves, and effectively make the prices everyone else works from.
- Corporations exchange currency out of necessity: paying foreign suppliers, repatriating overseas profits, hedging the risk that exchange-rate moves will erode a contract’s value.
- Central banks are not profit-seekers but are hugely influential. Their interest-rate decisions and, occasionally, direct intervention move currencies sharply.
- Funds and professional traders speculate on price movements at scale.
- Retail traders, meaning individuals, are the smallest layer by volume. They typically access the market through a broker, trading on margin via products such as CFDs or spot-FX accounts.
It is worth being clear-eyed about where an individual sits in that picture: at the far end of a chain, trading a broker’s price, against participants with far more information and capital.
When the market is open
Because forex is a global network rather than a building, it runs continuously from roughly Sunday evening to Friday evening (New York time), about 24 hours a day, five days a week. As one financial centre’s business day ends, another’s begins.
| Session | Approx. hours (GMT) | Character |
|---|---|---|
| Sydney | 21:00 – 06:00 | Quieter, opens the week |
| Tokyo | 00:00 – 09:00 | Asian-currency activity |
| London | 08:00 – 17:00 | Highest volume overall |
| New York | 13:00 – 22:00 | Major news and data releases |
The busiest, most liquid window is the London–New York overlap (roughly 13:00–17:00 GMT), when two of the largest centres are open at once. Liquidity is not constant, and the quiet hours can behave very differently from the busy ones.
Why prices move
An exchange rate is simply the price of one currency in terms of another, and like any price it reflects supply and demand. The forces behind that demand include:
- Interest rates and central-bank policy. Currencies that offer higher returns tend to attract capital. Much of FX trading is, at heart, a bet on what central banks will do next.
- Economic data. Inflation, employment, growth, and trade figures shift expectations about future policy.
- Geopolitics and risk sentiment. In uncertain times, money tends to move toward currencies perceived as safe.
- Trade and capital flows. The everyday business of importing, exporting, and cross-border investment.
No single factor explains a currency on its own. Prices reflect the market’s constantly-updating consensus about all of them at once.
The takeaway
The forex market is the world’s largest and most liquid financial market: a decentralised, 24-hour global network where currencies are exchanged for trade, investment, hedging, and speculation. It has no central exchange and no single official price. Its movements are driven by interest rates, economic data, and the flow of money across borders.
That is the terrain. The next step is learning how a currency is actually quoted and traded. That is where currency pairs come in.