What is Forex Trading?

The foreign exchange (forex or FX) market is the global marketplace for trading national currencies against one another. It's the world's largest and most liquid financial market.

Last updated: January 2025

Forex (FX) trading is the global 24/5 marketplace for exchanging currencies in pairs (e.g., EUR/USD). Prices move in pips and traders can go long or short using leverage and margin. Profit and risk depend on pair, position size, and pip value.

Reviewed by Trading Education Team•Last updated: January 2025

Key Takeaways

Forex (FX) is the global market for trading currency pairs like EUR/USD and USD/JPY
The forex market operates 24 hours a day, 5 days a week across global financial centers
With over $7.5 trillion in daily volume, it's the world's largest and most liquid market
Currency pairs are quoted in pips - the smallest price movement in forex trading
Traders can profit from both rising and falling currencies using leverage
Major pairs like EUR/USD typically have the tightest spreads and highest liquidity

How Forex Trading Works

Currency Pairs

In forex trading, currencies are always traded in pairs. When you buy EUR/USD, you're buying euros and selling US dollars simultaneously. The first currency (EUR) is the base currency, and the second (USD) is the quote currency.

The exchange rate tells you how much of the quote currency you need to buy one unit of the base currency. If EUR/USD = 1.0850, it means 1 euro costs 1.0850 US dollars.

Market Sessions

The forex market operates continuously from Sunday evening to Friday evening, moving through four major trading sessions:

Session	GMT Time	Major Pairs
Sydney	10 PM - 7 AM	AUD/USD, NZD/USD
Tokyo	12 AM - 9 AM	USD/JPY, EUR/JPY
London	8 AM - 5 PM	EUR/USD, GBP/USD
New York	1 PM - 10 PM	EUR/USD, USD/CAD

Price Movements and Pips

Forex prices move in pips (percentage in point). For most currency pairs, a pip is the fourth decimal place (0.0001). Understanding pip values is crucial for calculating profits, losses, and risk management.

Forex Trade Example

Let's say you believe the euro will strengthen against the US dollar. You decide to buy EUR/USD at 1.0850.

Current Price:1.0850

EUR/USD exchange rate

Position Size:1 standard lot (100,000 units)

Price Rises To:1.0900

50 pips movement (1.0900 - 1.0850)

Pip Value:$10

For 1 standard lot of EUR/USD

Profit:$500

50 pips × $10 per pip = $500 profit (before spreads and commissions)

Try it yourself: Use our Pip Value Calculator orPosition Size Calculator to plan your trades.

Related Calculators

Pip Value Calculator

Calculate the monetary value of a pip for any currency pair

Position Size Calculator

Determine the optimal trade size based on your risk tolerance

Margin Calculator

Calculate required margin for your forex trades

Related Glossary Terms

Currency Pair

Understanding base and quote currencies

Spread

The cost of trading forex

Leverage

Amplifying your trading power

Frequently Asked Questions

Yes, the forex market operates 24 hours a day, 5 days a week. It opens Sunday evening (Sydney session) and closes Friday evening (New York session). This continuous operation is possible because trading moves across global financial centers: Sydney, Tokyo, London, and New York.