What Is the Forex Market and How Does It Work?

What is forex?

Forex (Foreign Exchange) is the global market where one currency is bought and sold against another. Daily volume exceeds $7 trillion and it's open 24 hours a day during the trading week. The New York, London, Tokyo and Sydney sessions overlap around the clock.

What is a currency pair?

Forex always trades in pairs: EUR/USD, USD/JPY, GBP/JPY and so on. The first currency is the "base" and the second is the "quote" — the number shows how many units of the quote you get for one unit of the base. Example: EUR/USD = 1.08 means 1 Euro = 1.08 US Dollars.

• Major pairs: The most liquid pairs, all containing USD (EUR/USD, USD/JPY, GBP/USD, USD/CHF).
• Minor pairs: Pairs of major currencies without USD (EUR/GBP, EUR/JPY).
• Exotic pairs: Emerging-market currencies (USD/ZAR, USD/MXN). Higher volatility and wider spreads.

What sets an exchange rate?

• Interest rates: Higher rates usually attract demand for that currency.
• Inflation: High inflation erodes a currency's value over time.
• Central bank policy: Fed, ECB and BoJ decisions can trigger large moves within seconds.
• Current account: A country that exports more than it imports tends to see its currency strengthen.
• Geopolitical risk: During wars, elections and crises, "safe-haven" currencies (USD, CHF, JPY) tend to appreciate.
• Speculation: Large fund flows can drive sharp short-term moves.

What is forex used for?

• Import/export businesses hedging currency risk
• Travel and tourism money exchange
• Converting the proceeds of international investments
• Central-bank reserve management
• Speculative and leveraged trading

Live rates

Track live cross-rates across 200+ currencies on the NexPrices Forex screen, including dollar, euro and other major pairs updated in real time.

Disclaimer

Leveraged forex trading can result in the loss of your entire capital. This article is for educational purposes only and is not financial advice.