The Foreign Exchange Market — Explained Simply
The foreign exchange market — forex, or FX — is where currencies are bought and sold. When you travel abroad and exchange your dollars for euros, you're participating in forex. The difference is that professional forex traders do this at scale, speculating on whether one currency will rise or fall against another.
The forex market is the largest financial market in the world by a significant margin — $6.6 trillion trades through it every single day, according to the Bank for International Settlements. That's larger than the stock market, the bond market, and every other financial market combined.
How Does Forex Trading Work?
Forex is traded in currency pairs. Every trade involves buying one currency and simultaneously selling another. The most traded pair is EUR/USD — the Euro against the US Dollar. If you believe the Euro will strengthen against the Dollar, you buy EUR/USD. If you think the Dollar will strengthen, you sell EUR/USD.
The Major Currency Pairs
The "major" pairs all include the US Dollar and account for the majority of global trading volume. They have the tightest spreads and most liquidity:
| Pair | Currencies | Nickname |
|---|---|---|
| {p} | {c} | {n} |
When is the Forex Market Open?
Forex trades 24 hours a day, 5 days a week — from Sunday evening (New Zealand open) to Friday evening (New York close). It is divided into four main sessions:
Sydney: 10pm–7am GMT | Tokyo: 12am–9am GMT | London: 8am–5pm GMT | New York: 1pm–10pm GMT
The highest trading volume — and tightest spreads — occurs during the London-New York overlap (1pm–5pm GMT). This is generally the best time for retail traders to trade major pairs.