Forex trading, also known as currency trading, is the exchange of one currency for another. It is the largest financial market in the world, with over six trillion dollars changing hands every day. That is more than equities, bonds, and commodities combined.
The market runs 24 hours a day five days a week. It opens in Sydney, moves through Tokyo, into London, and closes in New York. Each session has its own character. Tokyo is thinner and more range-bound. London is where the real volume kicks in. New York overlaps with London for four hours and that window produces some of the most violent moves of the day.
At the center of the market is the interbank system. The largest banks in the world trade directly with each other, setting the prices that everyone else trades off. When Deutsche Bank and JPMorgan exchange two billion euros, that transaction ripples through every retail platform and hedge fund screen on the planet. The interbank market is the source of all currency pricing.
Most trading happens in the spot market where currencies are exchanged at the current price for immediate settlement. The forward market allows you to lock in a rate for a future date, which is how corporations hedge their international revenue and how hedge funds structure leveraged positions through rolling forwards. Options give you the right but not the obligation to exchange at a specific rate, and they are where the most sophisticated players express views on volatility and direction simultaneously.
The major pairs are EUR/USD, USD/JPY, GBP/USD, and USD/CHF. These account for the majority of global volume. Beyond those are the crosses like EUR/JPY and GBP/CHF, and then emerging market currencies like the Turkish lira, South African rand, and Mexican peso where the moves can be explosive but liquidity disappears fast.
What actually moves currencies is not what most people think. Over the long term, interest rate differentials and inflation expectations drive exchange rates. But on any given day, positioning matters more than fundamentals. If 80 percent of the market is already long dollars, even strong US data might not push the dollar higher because there is nobody left to buy. The best currency traders do not just analyze data. They analyze who is already positioned and what it would take to force them out.
Central banks are the most powerful participants in the market. When the Federal Reserve changes interest rates or the Bank of Japan intervenes directly in USD/JPY, the moves can be hundreds of pips in minutes. Understanding central bank behavior, their language, their reaction functions, and their tolerance for currency moves is the single most important skill in forex trading.
Leverage is what makes forex both attractive and dangerous. A retail trader can control a position 50 times their account size. That means a two percent move can double your money or wipe you out. Most retail traders lose money in forex because they use too much leverage and do not manage risk. The traders who survive and profit are the ones who treat risk management as the primary skill and everything else as secondary.
