Forex, short for “foreign exchange,” is the global marketplace for trading currencies where trillions of dollars are exchanged daily. Recognised as the largest and most liquid financial market in the world, the forex market operates 24 hours a day, five days a week, across major financial hubs like London, New York, Tokyo, and Sydney.
In forex trading, participants including central banks, financial institutions, hedge funds, corporations, governments, and individual traders buy and sell currencies to profit from price fluctuations, manage risk, or facilitate global commerce. Whether you’re a beginner or an experienced trader, understanding how the forex market works is essential to mastering global currency trading and achieving financial success.
In the forex market, traders profit from currency exchange rate fluctuations by buying one currency and selling another. This global marketplace — open 24 hours a day and known for its deep liquidity — attracts financial institutions, hedge funds, and retail traders seeking opportunities for speculation, hedging, and diversification. As the largest and most active financial market, forex trading serves as the backbone of international finance and a powerful avenue for global currency trading.
Forex trading operates through currency pairs like EUR/USD (Euro/US Dollar) or USD/JPY (US Dollar/Japanese Yen). The base currency is traded against the quote currency, with the exchange rate showing how much of one is needed to buy the other. While forex trading offers significant profit potential, it also involves risk — making technical analysis, market knowledge, and sound risk management essential for long-term success in the foreign exchange market.
The forex market operates 24 hours a day, five days a week, providing ample opportunities for trading. The market is divided into different trading sessions, each associated with major financial centers around the world. Here are the key forex trading sessions:
- Sydney Session:
Opens at 10:00 PM GMT on Sunday and closes at 7:00 AM GMT on Monday. - Tokyo Session:
Opens at 12:00 AM GMT and closes at 9:00 AM GMT. - London Session:
Opens at 8:00 AM GMT and closes at 5:00 PM GMT. - New York Session:
Opens at 1:00 PM GMT and closes at 10:00 PM GMT.
This is the first currency set that appears in the forex pair. It’s the one that’s bought or sold for the quote currency. In the example above, the GBP is the base currency.
This is the price that a trader is willing to buy a currency pair at. It constantly fluctuates.
The difference between the bid and the ask price is called the spread.
This is the second currency that appears in the pair, and is also known as the ‘counter currency’. In the example above, the USD is the quote currency.
This is the price that a trader would ask for when selling the currency pair. The ask price also changes constantly and is driven particularly by market demand.
Pip is an abbreviation for point in percentage and is the unit of measurement used to express the change in value between two currencies.
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