What Is Forex? The Foreign Exchange Market Explained

Forex in one sentence

Whenever one currency is exchanged for another — a tourist buying euros, a company paying a supplier in yen, a central bank managing its reserves or a trader speculating on the dollar — that transaction happens in the foreign exchange market.

How big is the forex market?

The Bank for International Settlements (BIS) measures the market every three years in its Triennial Central Bank Survey. In April 2025:

Measure	Figure
Average daily turnover	$9.6 trillion (up 28% from 2022)
Spot transactions	$3 trillion per day (31% of turnover)
Share of trades involving the US dollar	89%
Share of trading in the United Kingdom	38%

Spot vs derivatives: the ways currencies are traded

“Forex” covers several kinds of transaction. The simplest is a spot trade; the rest are derivatives, whose value depends on an exchange rate at a future date. BIS figures for April 2025:

Instrument	What it is	Daily turnover
Spot	Exchange at today’s rate, normally settled within two business days	$3.0 trillion (31%)
FX swaps	Exchange currencies now and swap them back later at an agreed rate — used mainly by banks for funding and hedging	$4.0 trillion (42%)
Outright forwards	Agree today on a rate for a single exchange at a future date — used by companies to hedge	$1.8 trillion (19%)
Options	The right, but not the obligation, to exchange at an agreed rate	about 7%

Where retail traders fit in: depending on the jurisdiction, retail forex is offered as rolling spot contracts (for example by US retail forex dealers) or as CFDs (common in the UK, EU and Australia). Both track spot prices but are settled in cash — no currency is delivered — and open positions are rolled over each night, which is where overnight swap (rollover) charges come from. These retail charges are not the same as the FX swaps in the table above. Currency futures traded on exchanges are another, standardised way to trade exchange rates.

Currencies trade in pairs

You cannot buy “the euro” on its own — you always buy one currency by selling another. That is why forex prices are quoted as currency pairs:

Reading a quote

EUR/USD = 1.0850 means one euro costs 1.0850 US dollars.

• EUR is the base currency (the one you are buying or selling).
• USD is the quote currency (the one the price is expressed in).

If EUR/USD rises to 1.0900, the euro has strengthened against the dollar. Price changes are measured in pips.

Who trades forex?

• Banks and dealers — the core of the market, trading with each other and for clients.
• Businesses — converting sales revenue and paying for imports.
• Investors and funds — buying foreign assets and hedging currency risk.
• Central banks — managing reserves and occasionally intervening to influence their currency.
• Retail traders — individuals speculating through brokers, usually with leverage.

A decentralised, 24-hour market

Forex has no central exchange. It is an over-the-counter (OTC) market: prices are set by a network of banks, dealers and electronic platforms around the world. As one financial centre closes another opens, so the market trades around the clock from Sunday evening to Friday evening New York time. See our forex market hours clock for live session times.

From currency pairs to a multi-asset market

Retail forex trading began with currency pairs, and they are still at its core. Over the years, however, most “forex brokers” have become multi-asset trading platforms. From the same account and platform, traders can often trade:

• Precious metals — gold (XAU/USD) and silver (XAG/USD) are quoted and traded much like currency pairs.
• Stock indices — for example the US 500, Germany 40 or Japan 225, often priced from index futures.
• Commodities — oil, natural gas and agricultural products.
• Shares of global companies — such as Apple, Microsoft or Tesla.
• Cryptocurrencies — offered by some brokers, and not permitted for retail clients in every country.

At most retail brokers these instruments are traded as contracts for difference (CFDs): you speculate on the price without owning the underlying asset. Some brokers also offer exchange-traded futures, or real shares on separate accounts.

Leverage limits reflect these different risks. For retail clients in the EU, ESMA caps leverage at 30:1 on major currency pairs, 20:1 on non-major pairs, gold and major indices, 10:1 on other commodities and non-major indices, 5:1 on individual shares and 2:1 on cryptocurrencies.

What moves exchange rates?

Exchange rates reflect supply and demand for each currency. The main drivers include interest rates and central bank policy, inflation, economic growth, trade flows, political events and overall market sentiment.

Key concepts at a glance

• Majors, minors and exotics. Major pairs combine the US dollar with another major currency (EUR, JPY, GBP, CHF, CAD, AUD or NZD). Minors or crosses pair two major currencies without the dollar, such as EUR/GBP. Exotics pair a major currency with an emerging-market currency, such as USD/TRY or USD/ZAR, and usually have wider spreads.
• Bid, ask and spread. Every quote has a selling price (bid) and a buying price (ask); the gap between them is the spread, the main cost of most trades. More: bid and ask price, spreads.
• Liquidity. How easily a pair can be traded without moving its price. Major pairs during busy hours are the most liquid, with the tightest spreads. More: liquidity.
• Trading sessions. Activity moves from Sydney and Tokyo to London and New York through the day; the London–New York overlap is usually the busiest period. More: forex market hours.
• Margin and leverage. Brokers let you open positions larger than your deposit; the deposit held for each trade is the margin. More: leverage, margin.
• Rollover. Positions held past the daily cut-off are rolled over to the next day, earning or paying an overnight swap based on interest rates. More: overnight swaps and rollover.

Next steps

Learn how forex trading works, then the core units of every trade: pips and lots.