What Is Forex?
The currency market explained: who trades it, why it is the biggest market in the world, and how the trading sessions work around the clock.
Course outline
If you have ever swapped rupees for dollars at an airport, or dollars for euros before a holiday, you have already made a forex trade. You handed over one currency and got another back at the day's exchange rate. Forex traders do the same thing, just electronically, in bigger amounts, and with the aim of profiting from changes in that rate.
What is forex?
Forex (short for foreign exchange, also called FX) is the global market for buying one currency while selling another.
Currencies always trade in pairs. You cannot just "buy dollars"; you buy dollars with something else, such as euros or yen. That is why forex prices look like EUR/USD 1.1000, which means one euro costs 1.10 US dollars. The next lesson breaks down exactly how to read a pair.
Who trades forex, and why
Lots of people need to swap currencies for everyday reasons:
- Businesses paying overseas suppliers or bringing home foreign sales.
- Travellers and students paying for trips and tuition abroad.
- Central banks managing their country's currency and reserves.
- Banks and investment funds moving money between countries.
- Speculators, including retail traders like you, who try to profit from rate changes.
Why it is the biggest market in the world
Every international deal, from a phone factory buying parts to a family sending money home, needs a currency swap somewhere. Add the banks and funds trading on top, and the forex market handles more than $7 trillion a day, according to surveys by the Bank for International Settlements. That is far more than the daily trading on all the world's stock exchanges combined.
For a trader, that size means:
- High liquidity in the major pairs, so you can usually get in and out instantly.
- Low spreads on popular pairs like EUR/USD.
- No single player can easily control the price for long.
No central exchange
Unlike stocks, forex has no main building or single exchange. It is over-the-counter: big banks trade directly with each other in what is called the interbank market, and retail traders reach it through brokers. Because there is no single exchange, prices at different brokers can differ slightly.
Market hours and sessions
Forex runs about 24 hours a day, five days a week, from Sunday evening to Friday evening (US time). It follows the sun as major financial centres open and close. Each block of activity is called a session.
| Session | Eastern Time (US) | India (IST) |
|---|---|---|
| Sydney | 5 pm to 2 am | 2:30 am to 11:30 am |
| Tokyo | 7 pm to 4 am | 4:30 am to 1:30 pm |
| London | 3 am to 12 pm | 12:30 pm to 9:30 pm |
| New York | 8 am to 5 pm | 5:30 pm to 2:30 am |
These times are approximate and based on US summer time. They shift by about an hour when clocks change in the US, UK or Australia.
Why sessions matter
- The London and New York overlap (about 8 am to 12 pm ET, or 5:30 pm to 9:30 pm IST) is usually the busiest and most liquid time of day.
- The Asian session is often quieter for pairs like EUR/USD, while yen pairs are more active.
- Late Friday and Sunday evening can be thin, with wider spreads and sudden jumps.
You do not need to trade every session. Many people pick one or two that fit their life and learn how their chosen pair behaves during those hours.
A worked example: the accidental forex trade
You are planning a trip to Europe. You exchange $1,000 into euros when EUR/USD is 1.1000:
- $1,000 ÷ 1.1000 = €909.09
The trip gets cancelled. A month later you change the euros back.
| EUR/USD a month later | Calculation | Dollars back | Result |
|---|---|---|---|
| 1.1500 (euro stronger) | €909.09 × 1.15 | $1,045.45 | +$45.45 |
| 1.0500 (euro weaker) | €909.09 × 1.05 | $954.55 | −$45.45 |
Without meaning to, you were "long" the euro. When it strengthened, you gained; when it weakened, you lost. That is forex trading in a nutshell.
In real life, the airport counter's wide buy and sell prices would probably have eaten most of that gain. Costs matter, and you will learn to measure them in the coming lessons.
Check the rules where you live
Forex rules vary a lot by country. In the US, retail forex brokers must be registered with the CFTC and be members of the NFA. In India, rules are stricter: residents can generally trade currencies only through SEBI-registered brokers on Indian exchanges, and the RBI publishes an alert list of unauthorised forex platforms. Always check the current rules before opening any account.
Risk note: Forex is fast, open almost around the clock and often offered with high leverage. That combination makes it easy to overtrade and lose money quickly. Learn on a demo account first.
Key takeaways
- Forex is the market for swapping one currency for another, always in pairs.
- It is the largest financial market in the world, trading more than $7 trillion a day.
- There is no central exchange; banks and brokers trade over-the-counter.
- The market runs 24 hours on weekdays through the Sydney, Tokyo, London and New York sessions.
- Rules differ by country, so check what is allowed where you live.
Up next: Currency Pairs and Pips, where you learn to read a pair and calculate what each tiny price move is worth.