The foreign exchange market explained: what you're actually buying and selling, who trades it and why it never sleeps.
Forex (foreign exchange) is the market where one currency is exchanged for another. With more than $7 trillion traded every day, it is the largest and most liquid market in the world.
Currency pairs
Currencies are always traded in pairs, such as EUR/USD. The first currency is the base, the second is the quote. If EUR/USD is 1.0842, one euro buys 1.0842 US dollars. When you 'buy' EUR/USD you expect the euro to strengthen against the dollar; when you 'sell' you expect the opposite.
Who trades forex?
Central banks, commercial banks, corporations hedging international payments, funds and retail traders all participate. Because the market is decentralised and spans every time zone, it trades 24 hours a day from Sunday evening to Friday evening.
Pips, lots and leverage
Price movements are measured in pips — usually the fourth decimal place. Trade sizes are measured in lots (100,000 units of the base currency for a standard lot). Leverage lets you control a large position with a smaller deposit, which amplifies both profits and losses.
This article is general education, not investment advice.
