Forex is the market where one currency is exchanged for another.
Quick answer: Forex (short for foreign exchange, also written FX) is the global market where currencies are exchanged for one another. Prices are quoted in pairs such as EUR/USD, trading runs 24 hours a day on weekdays, and the Bank for International Settlements reports about $9.6 trillion traded per day (April 2025). Retail traders speculate on whether one currency will rise or fall against another, usually through a broker and often with leverage, which magnifies both gains and losses. It is high risk, so learn the mechanics first. Check the value of a pip with the free pip calculator.
Key takeaways
Forex means foreign exchange: swapping one currency for another. Every price is a ratio between two currencies.
It is an over-the-counter market with no central exchange, open around the clock from Sunday evening to Friday evening New York time.
Most of the volume is not what retail traders do: spot FX is about 31% of turnover, and banks and companies dominate the rest.
Retail trading is mostly speculation on pair prices, using pips, lots and leverage. A small deposit controls a much bigger position.
The risk is real and measurable. Position size, stop distance and costs decide how much you can lose.
Table of contents
What Does Forex Mean?
Forex is a shortened form of foreign exchange. It refers to exchanging the money of one country for the money of another, and to the global market where that happens. If a company in Germany needs to pay a supplier in US dollars, it must buy dollars with euros. If a traveler swaps pounds for yen, that is a foreign exchange transaction too. "Forex", "FX" and "currency trading" all describe the same market.
Because you always exchange one currency for another, forex prices are ratios. A price of 1.0850 for EUR/USD means one euro costs 1.0850 US dollars. If the number rises, the euro has become more valuable against the dollar. If it falls, the euro has become less valuable.
Currency trading happens through a network of banks and dealers, not one exchange.
Forex in 10 Numbers
These figures give you the shape of the market. Market size and currency shares come from the Bank for International Settlements (BIS) Triennial Survey for April 2025 (see the BIS announcement).
#NumberWhat it means1$9.6 trillionAverage daily FX turnover in April 2025 (BIS)2+28%Growth in daily turnover compared with 2022 (BIS)389%Share of trades with the US dollar on one side (BIS)4about 31%Spot FX as a share of turnover, roughly $3 trillion a day (BIS)5about 42%FX swaps, at about $4 trillion a day, the biggest instrument (BIS), used mainly for funding and hedging628Pairs that the 8 most traded currencies form (8 × 7 ÷ 2), of which 7 include the US dollar724 hours × 5 daysThe trading week, from around Sunday 17:00 to Friday 17:00 New York time (broker hours vary)8100,000Units of the base currency in a standard lot9about $10Value of one pip on a standard lot of EUR/USD for a USD account (approximate)1030 : 1Maximum leverage for EU retail clients on major pairs, per the 2018 ESMA announcement (check current rules)
Number 4 is the one that surprises people. The headline $9.6 trillion includes swaps and forwards used by banks and companies, so what retail traders mostly think of as "forex" (spot trading) is about 31% of it. The shares of the dollar, euro, yen and sterling add up to 200% because every trade involves two currencies.
How Currencies Are Quoted
Every pair has a base currency (the first) and a quote currency (the second). You always see two prices: the bid (where you can sell the base currency) and the ask (where you can buy it). The gap between them is the spread, a cost of trading (see our forex spread guide). Three more terms complete the vocabulary:
Pip: the standard small move in price, usually 0.0001 (0.01 for pairs with the yen). If EUR/USD moves from 1.0850 to 1.0851, that is one pip.
Lot: the size of a trade. A standard lot is 100,000 units, a mini lot 10,000 and a micro lot 1,000.
Leverage: borrowed buying power that lets a small deposit (the margin) control a larger position (see our forex leverage guide).
There are 28 pairs formed by the eight most traded currencies, plus many more exotic ones (see our forex currency pairs guide). If you want to convert amounts between currencies, use the forex currency converter.
One Trade, Start to Finish
Here is how a trade works with real numbers. This is an illustration, not a recommendation, and pip values are approximate for a USD account.
The idea: you think the euro will rise against the dollar. You buy EUR/USD at 1.0850.
The risk: your account is $10,000 and you risk 1%, which is $100. You place a stop loss at 1.0825 (25 pips below) and a take profit at 1.0925 (75 pips above), a 1:3 risk-to-reward ratio.
The size: lot size = $100 ÷ (25 pips × $10 per pip per standard lot) = 0.40 lots (40,000 euros).
The exposure: the position is worth about 0.40 × 100,000 × 1.0850 = $43,400. At 1:100 leverage the margin is about $434, and effective leverage on the $10,000 account is about 4.3 : 1.
OutcomeCalculationResultTake profit hit0.40 lots × 75 pips × $10+$300Stop loss hit0.40 lots × 25 pips × $10−$100Spread (assumed 1 pip)0.40 × 1 pip × $10$4 (0.04R)Net after spread$300 − $4 or −$100 − $4about +$296 or −$104
Notice what is happening: you chose the loss first ($100), and the stop distance set the lot size. That is the foundation of every sensible forex plan. The forex position size calculator does this arithmetic for you, and the forex margin calculator shows the margin for a trade.
Every trade can be worked out in numbers before you place it.
Who Trades Forex, and How Brokers Get Paid
Forex has no central exchange. Trading happens over the counter, through a network of banks, dealers and electronic platforms. The main participants are:
Banks and dealers that quote prices and trade for clients and themselves.
Central banks, which manage reserves and sometimes intervene.
Companies that need foreign currency for trade and hedge their exposures.
Investment funds and asset managers that move money across countries.
Retail traders, individuals trading through brokers, a small part of the overall market.
Retail brokers are usually paid through the spread (the gap between the bid and ask), sometimes a commission per lot and, if you hold overnight, a swap charge or credit. That is why costs matter: they are paid on every trade whether you win or lose. The BIS also shows how concentrated the market is: about 75% of FX trading in April 2025 took place in four centers (the UK, the US, Singapore and Hong Kong), and the UK alone handled 38% (figures from the same BIS announcement).
When Is the Forex Market Open?
Trading follows the business day around the world, so it runs around the clock on weekdays through four main sessions: Sydney, Tokyo, London and New York. The London and New York overlap is usually the busiest window. Session times shift with daylight saving, and the US and Europe change clocks on different dates, so check your own time zone with the forex session converter and read our forex market hours guide for the full tables.
The forex market follows the sun across four major sessions.
Why Currency Prices Move
Currency prices move because of changes in supply and demand for a currency. The main drivers include:
Interest rates and central bank policy: higher expected rates can attract money to a currency.
Inflation and economic data: growth, jobs and inflation reports shape expectations.
Risk sentiment: in uncertain times, money often moves toward currencies seen as safer.
Trade and capital flows: companies and investors buying or selling currencies for real business.
News and events: elections, policy surprises and shocks can cause sharp moves.
These are general drivers, not predictions, and their effect changes over time. Nobody can reliably forecast currency prices, which is why risk control matters more than being right.
Forex vs Stocks vs Crypto
FeatureForexStocksCryptoWhat you tradeOne currency against anotherShares of a companyDigital coins and tokensWhereOver the counter, no central exchangeRegulated exchangesMany exchanges and platformsTypical hours24 hours, 5 days a weekExchange hoursOften 24 hours, 7 days a weekLeverageOffered by brokers, capped in some regionsUsually lower, varies by accountVaries widely by platformMain price driversRates, inflation, economic dataCompany results, the economySentiment, adoption, regulation
These are broad tendencies and details vary by country, broker and platform. The common thread is that position sizing and risk limits matter in all three.
The Risks, in Numbers
The risk in forex is not mysterious. It comes from a few measurable things, and each one has a number attached:
Leverage: the position in the example is worth $43,400 on a $10,000 account. A 25-pip move against you costs $100, but with a 1.00-lot position the same move costs $250, which is 2.5% of the account instead of 1%. The CFTC warns that forex is volatile, that you can lose most or all of your money quickly, and that margin trading can leave you responsible for losses greater than your deposit (see the CFTC forex advisory).
Losing streaks: at a 40% win rate, a streak of 7 losses somewhere in 200 trades is very likely. If you risk 10% per trade, that streak halves your account. At 1% it takes 69 losses to do the same (see our forex risk management guide).
Recovery: a 50% loss needs a 100% gain to get back to even.
Costs: with an assumed 1.2-pip spread, the cost is 0.048R on a 25-pip stop but 0.12R on a 10-pip stop.
Regulation differs: in 2018, ESMA announced leverage limits of 30:1 for major pairs and 20:1 for non-major pairs, gold and major indices for EU retail clients (see the ESMA announcement). That announcement is from 2018, and rules vary by country and change, so check your own regulator.
Leverage and costs make forex risky, so measure the risk before the trade.
How to Start Safely
Learn the vocabulary and the math. Our forex for beginners guide walks through the basics.
Practice on a demo account first, set up realistically (see our forex demo account guide).
Choose one or two pairs and one style. See our forex trading strategies guide.
Write rules and test them with costs (see our forex backtesting guide).
Keep a journal in R. Use the free trading journal calendar or our trading journal Excel guide.
If you go live, start small, risk a small percentage per trade and only use money you can afford to lose. Check that your broker is regulated where you live.
7 Common Misconceptions About Forex
"Forex is a way to get rich quickly." It is a high-risk market, and quick profit claims are a red flag.
"The market is huge, so it is easy." Size means liquidity, not easy profit. Most of the volume is banks and companies.
"More leverage means more profit." It means bigger swings in both directions.
"A stop loss guarantees my loss." Gaps and slippage can make the exit worse than planned.
"A good strategy never loses in a row." Every strategy has losing streaks.
"Demo results prove I am ready." Demo is kinder than live trading, so judge process, not profit.
"I can predict the news." Even good forecasts often get the market reaction wrong.
Learn the vocabulary and the numbers before you risk real money.
Frequently Asked Questions
What is forex?
Forex, or foreign exchange, is the global market where currencies are exchanged. Prices are quoted in pairs such as EUR/USD, and the BIS reports about $9.6 trillion traded per day (April 2025).
What does forex mean?
Forex is short for foreign exchange. It means exchanging one currency for another and refers to the market where that happens. FX and currency trading mean the same thing.
How does forex trading work?
You trade a currency pair, buying one currency and selling the other, and profit or lose as the price moves. Trades are measured in pips and lots, and brokers usually offer leverage. The result depends on your position size, stop distance and costs.
Is forex trading legal?
Forex trading is legal and regulated in many countries, but rules differ widely. Some places restrict leverage or products, and brokers must often be licensed. Check the rules and your broker's regulation in your own country.
Is forex gambling?
It can become gambling when traders risk too much without a plan or an edge. Trading with written rules, fixed small risk and a journal is more disciplined, though still risky and with no guarantee of profit.
How much money do I need to start forex trading?
There is no single answer. Some brokers allow small deposits, but use only money you can afford to lose, and make sure the smallest lot size does not risk more than your plan allows. Practice on a demo account first.
Can you make a living from forex?
Some people trade professionally, but it is difficult, and many retail traders lose money. Treat any promise of easy income with suspicion, and focus on learning, risk control and consistency.
What currencies are traded in forex?
The most traded are the US dollar, euro, Japanese yen and British pound, followed by the Swiss franc and the Australian, Canadian and New Zealand dollars. Together they form the 28 main pairs.
Conclusion
Forex is the exchange of one currency for another, traded around the clock through banks, dealers and brokers. For retail traders it is a leveraged, high-risk market where the numbers (pip value, position size, margin and costs) decide how much can go wrong. Learn those numbers first. Open the pip calculator and work out a trade on paper, then explore the other free forex trading tools.
Work Out Your First Trade Size, Free
Risk disclaimer: This article is for educational purposes only and is not financial advice. Examples, rates and spreads are illustrations, not current quotes, recommendations or expected results. Trading forex and CFDs is high risk, leverage can magnify losses, and in some jurisdictions you can lose more than your deposit. Rules differ by country. Check your broker's regulation and terms, and only trade with money you can afford to lose.
