What Is Forex?

Forex ( short for Foreign Exchange ) is the global financial market where currencies are exchanged.

In the simplest terms, Forex trading means exchanging one currency for another in order to profit from changes in exchange rates. If one currency becomes stronger compared to another, traders can earn a profit from that price movement.

Forex exists because different countries use different currencies—and these currencies constantly change in value relative to each other.

Table of Contents

• What Is Forex Trading?
• How Does Forex Trading Work in Real Life?
• What Is an Exchange Rate?
• Why Do Exchange Rates Change?
• What Is the Forex Market?
• How Big Is the Forex Market?
• Who Trades in the Forex Market?
• Is Forex Really a $7 Trillion Market
• Forex Market Trading Hours
• Summary

What Is Forex Trading?

Forex trading is the act of buying one currency while simultaneously selling another.

Currencies are always traded in pairs, such as:

• EUR/USD
• USD/JPY
• GBP/USD

When you trade Forex, you are not buying a physical product. Instead, you are speculating on whether one currency will rise or fall in value compared to another.

Your profit or loss depends entirely on how the exchange rate moves after you open a trade.

How Does Forex Trading Work in Real Life?

A simple real-world example of Forex happens when people travel internationally.

Imagine you travel from the United States to Japan:

• You exchange US dollars (USD) for Japanese yen (JPY)
• At that moment, you are participating in the Forex market
• You have sold dollars and bought yen

If the exchange rate changes before you convert your yen back to dollars, you may end up with more or less money than you started with.

This same concept applies to Forex trading—except trades are executed digitally, instantly, and at much larger scale.

What Is an Exchange Rate?

An exchange rate is the price of one currency relative to another.

For example:

• If USD/JPY is trading at 150.00
• It means 1 US dollar equals 150 Japanese yen

Exchange rates are constantly changing due to market supply and demand.

These changes in exchange rates are what create profit opportunities in the Forex market.

Why Do Exchange Rates Change?

Exchange rates move because currencies are influenced by many economic and political factors, including:

• Interest rates and central bank decisions
• Inflation and economic growth
• Trade balances between countries
• Political stability and global events
• Market expectations and sentiment

Because these factors are always evolving, the Forex market is constantly active and in motion.

What Is the Forex Market?

The Forex market, also known as FX, is a global and decentralized marketplace where currencies are traded.

Key characteristics of the Forex market:

• No central exchange
• Trades occur electronically over-the-counter (OTC)
• Prices change every second
• Participants come from all over the world

Only a small portion of currency transactions come from tourism or international trade.
The majority of Forex transactions are driven by speculation, where traders buy and sell currencies to profit from price movements.

How Big Is the Forex Market?

The Forex market is the largest financial market in the world.

Key facts:

• Total global Forex trading volume exceeds $7.5 trillion per day
• Significantly larger than stock exchanges such as the NYSE
• Trades occur across all major financial centers worldwide

However, it is important to understand what this number actually represents.

Is Forex Really a $7.5 Trillion Market?

The often-quoted $7.5+ trillion daily volume refers to the entire global foreign exchange market, including:

• Interbank transactions
• Institutional hedging
• Central bank operations

The spot Forex market, which is most relevant to retail Forex traders, is smaller—around $2 trillion per day.

Retail traders (individual traders) are estimated to account for only 3–5% of total daily Forex volume.

So while Forex is undeniably massive, the commonly advertised number can be misleading if taken out of context.

Who Trades in the Forex Market?

The Forex market includes a wide range of participants:

• Central banks
• Commercial and investment banks
• Multinational corporations
• Hedge funds and asset managers
• Retail traders

Each group trades Forex for different reasons, such as managing risk, facilitating international payments, or speculating on price movements.

Forex Market Trading Hours

One unique feature of Forex is that it operates almost continuously.

The Forex market is:

• Open 24 hours a day
• Open 5 days a week
• Closed only on weekends

Trading follows the global time zones, moving from:

• New Zealand & Australia
• Asia
• Europe
• North America

When one financial center closes, another opens—allowing Forex trading to continue around the clock.

Summary: What Is Forex?

Forex is the global market for exchanging currencies.
Forex trading involves buying and selling currency pairs to profit from changes in exchange rates.

Because of its size, liquidity, and 24-hour availability, Forex has become one of the most accessible financial markets for traders worldwide.