What is forex trading?
A 5-minute primer on the global FX market — how it works, who trades it, and why prices move.
The world’s largest market
The foreign exchange (forex / FX) market is where the world’s currencies are bought and sold. Daily turnover exceeds $7.5 trillion (BIS Triennial Survey 2022) — more than every stock market on the planet combined.
There is no central exchange. Forex is decentralised, with prices set by a network of major banks, hedge funds, central banks, corporations, and retail brokers transacting 24 hours a day, five days a week.
How a forex quote works
Currencies are always quoted in pairs — for example, EUR/USD 1.0876. This means:
- EUR is the base currency
- USD is the quote currency
- 1 euro buys 1.0876 US dollars
If EUR/USD moves from 1.0876 to 1.0900, the euro has strengthened against the dollar. If it falls to 1.0850, the dollar has strengthened.
Major pairs
About 80% of retail forex volume sits in seven “major” pairs — all involving the US dollar:
| Pair | Nickname |
|---|---|
| EUR/USD | Fiber |
| GBP/USD | Cable |
| USD/JPY | Gopher |
| USD/CHF | Swissy |
| AUD/USD | Aussie |
| USD/CAD | Loonie |
| NZD/USD | Kiwi |
Pairs that don’t involve the USD (“crosses”) and pairs involving emerging-market currencies (“exotics”) trade with wider spreads and lower liquidity.
Why do prices move?
Currency prices reflect the relative strength of two economies. The biggest drivers:
- Interest rates — when a country’s central bank raises rates, its currency typically strengthens (capital flows in to earn the yield)
- Inflation — high inflation erodes a currency’s purchasing power
- Economic growth — GDP, employment, retail sales
- Risk sentiment — in “risk-off” periods, safe-haven currencies (USD, JPY, CHF) tend to rise
- Political stability — election surprises, sanctions, conflict
Retail forex: how you actually trade
Retail traders access forex through brokers — companies that route your orders to the interbank market (or hold the other side themselves). You use a trading platform (MetaTrader 4/5, cTrader, or a proprietary web/mobile app) to send buy/sell orders.
Most retail trading is done as CFDs (contracts for difference) — derivative contracts that track currency prices without you actually owning any currency. CFDs let you trade with leverage (controlling a position much larger than your deposit) and short-sell (profit from falling prices) easily.
Important: the same leverage that amplifies gains amplifies losses. Most retail CFD accounts lose money — typically 70–85% of accounts blow up within 12 months according to ESMA-mandated broker disclosures.