Forex trading, also known as FX trading, is the process of speculating on whether the value of one currency will rise or fall against another. While the term “forex trading” describes all dealings in the global foreign exchange market, when people ask, “What is forex trading?” they are usually interested in online retail forex trading, which is just a subset of this vast market.
Retail forex trading is when individuals like you and me trade currencies online through a broker on a computer or phone. While the process itself is practically identical to how professionals trade forex at institutions, the access to resources and information for retail forex traders is disproportionately smaller.
Definition of forex: 'Forex' (short for 'foreign exchange') is the interconnected market that encompasses all currency transactions around the world, such as massive trades between institutions and corporations as well as individuals swapping a few dollars for euros at the airport's exchange booth.
How Does Forex Trading Work?
Forex trading works by simultaneously buying one currency and selling another for the purpose of profiting from the potential movement in the exchange rate. If the currency you bought climbs, your trade will produce a gain. If, on the other hand, the currency you sold strengthens, you will take a loss on the trade.
Retail forex traders use an online broker to facilitate the process. The broker gives access to prices on the global, interbank foreign exchange market as well as tools and information needed to make trading decisions. Regulated brokers also provide a controlled amount of leverage, which traders can use to increase their exposure in the market without the need to provide the entire capital themselves.
Here’s how the forex trading process basically works:
- Sign up with a broker: Retail traders cannot interact directly with interbank pricing, so a forex broker acts as the intermediary. Through the broker, you can trade tiny positions at ultra-low costs.
- Log in to a trading platform: Once you open an account with a broker, you log in to a trading platform like MetaTrader 4 (MT4), MetaTrader 5 (MT5), TradingView, cTrader, or the broker’s proprietary trading app. This is where you can monitor prices in real time, read charts, analyse data, and enter trades.
- Place a trade: You pick a currency pair (e.g., EUR/USD), decide your direction, choose your position size, and click “Buy” if you think the first currency will rise, or “Sell” if you think it will fall.
- Broker executes the order: Once you place your trade, the broker executes your order, either by routing it to liquidity providers or filling it internally at the best available price.
How is forex trading different from converting currencies at a physical exchange office?
Exchanging money at a physical currency counter and online forex trading have different purposes:
- Online forex trading does not involve taking possession of any physical cash. Instead, you are trading contracts on prices quoted by liquidity providers solely for the purpose of speculating on price movements. The process often involves added leverage, which can magnify both gains and losses.
- Currency exchange offices are used to convert currencies for practical purposes such as obtaining cash for international travel. While technically you can use a physical exchange to speculate in forex, doing so would be costly and hugely inefficient.
What is the forex market?
The forex market is the global over-the-counter (OTC) network of institutions, banks, businesses, and individuals where the world’s currencies are bought and sold against one another. These entities access the forex market through this OTC network to convert currencies for trade, investment, or speculation.
The forex market is the invisible backbone of the global economy, the place where the value of every nation’s money is continuously valued, 24 hours a day, five days a week. This massive OTC network serves a critical real-world purpose in keeping global commerce running. When a US company buys goods from Japan, pays dividends to European shareholders, or a tourist in Thailand exchanges pounds for baht, all of those transactions flow through the forex market. Central banks participate to manage monetary policy and stabilise their currencies, multinational corporations use it to hedge billions in foreign revenue, and investment funds speculate for profit.
This massive trading volume leads us directly to one of the most important features of the currency market: liquidity.
Forex Market Liquidity
Forex market liquidity refers to the currency market's capacity to absorb large transaction volumes without a notable impact on price. Forex is by far the largest financial market on the planet and, therefore, the most liquid. For instance, the average daily turnover in Forex now exceeds $10 trillion (2025 Bank for International Settlements data). To put that in perspective, the New York Stock Exchange trades roughly $50–$100 billion per day, which means the forex market is 100 times bigger.
For you as a trader, this high forex liquidity offers three distinct advantages:
- Fast Execution: Unlike trading a small company stock or real estate (where you might wait days or months to find a buyer), in forex, there is almost always a buyer or seller ready to take the other side of your trade instantly.
- Low Transaction Costs: High liquidity creates fierce competition among banks and brokers to offer the best prices. This results in tighter spreads, making it cheaper for you to enter and exit trades compared to other markets.
- Price Stability: Because the market is so deep, it is difficult for a single transaction to manipulate the price. While a wealthy investor might be able to move the price of a small cryptocurrency or penny stock, it would take billions of dollars to significantly move a major currency pair like EUR/USD.
Who Controls the Forex Market?
No single entity controls the forex market. It is a global network of financial institutions quoting prices directly to each other. Unlike stocks, the currency market has no centralised exchange where all transactions are processed. While governments and central banks can exert more influence than other participants, they do not control the forex market either.
This absence of a sole authority is not adverse to market functioning. However, it does carry the risk of more grey areas than there are in centralised markets. For example, insider trading is clearly defined as illegal in equity markets and is actively monitored within one regulatory framework. Currencies, in contrast, are not categorised as securities in the conventional legal sense, making insider trading regulations much more difficult to implement and enforce.
Forex Market Participants
Forex market participants are all the institutions, businesses, and individuals who buy and sell currencies in the global foreign exchange market. While anyone can participate today, not everyone has the same power and impact on price.
There is a distinct hierarchy among the groups of forex market players. A handful of massive institutions sit at the top, and are the price makers on a day-to-day basis. Everyone else, from smaller firms to retail traders are what is known as “price takers”.
To answer the question, “Who trades forex?”, we will look at the major forex market participant groups and break them down by volume, influence, and their role in the market structure.
1. Large commercial and investment banks
The world's largest banks, like JPMorgan, Citi, UBS, and HSBC, are the forex liquidity providers. They effectively set the exchange rates that pass down to all other market participants.
The FX liquidity providers also act as intermediaries between smaller market participants and the broader interbank network, handling the majority of daily forex transactions. They also trade both for their own trading operations and on behalf of clients.
A lot of this trading happens inside the interbank market, which is the OTC network where banks and major institutions trade with each other. When people talk about liquidity providers, these banks (and the large firms connected to them) are what they mean. They provide tradable prices available in even when markets get volatile.
2. Central Banks
Central banks like the U.S. Federal Reserve, the European Central Bank, or the Bank of Japan are the most influential participants in forex. But central banks aren’t in the market for profit. Instead, they conduct market operations to manage their country's money supply and support optimal economic growth.
Nonetheless, the impact central banks have on forex prices is gigantic. When a central bank changes interest rates or increases or lowers the money supply, it causes massive moves in the forex market.
There are several mechanisms that a central bank can use to affect the value of its currency. A central bank can conduct regular market operations or directly intervene in the currency market to stabilise the value of their national currency.
3. Large Corporations
Multinational companies like Microsoft or Toyota participate in forex to do business, not to speculate. If a US company sells computers in Europe, they receive euros as payment. They must use the forex market to convert those euros back into US dollars to pay their workers and shareholders. This is known as commercial flows. These transactions, while not speculative, contribute significantly to daily forex volume and can influence exchange rates, especially for currency pairs involving major trading nations.
Corporations also hedge—locking in exchange rates to reduce uncertainty around future cash flows. The key point: this money is often “non-speculative”, but it’s steady, and over time it matters—especially in currencies tied to global trade.
4. Hedge Funds and Investment Firms
Hedge funds, macro funds, and asset managers participate in forex for two main reasons: speculation and portfolio hedging. They trade for profit based on macroeconomic themes like interest rate differentials, geopolitical developments, and capital flows.
Because such large investment firms manage massive pools of capital, their positioning can have a significant impact on price dynamics. When institutional investors align in one direction, they can reinforce trends and increase volatility, especially during periods of low liquidity or heightened uncertainty. While they do not set prices in the same way banks do, their activity often plays a decisive role in shaping medium-term market trends.
5. Retail Traders
Retail traders are the smallest participants in the forex market and, therefore, at the bottom of the hierarchy. Retail traders are people like you and me, firing up MT4, cTrader, or TradingView and placing trades through an online broker. We are what are called “price takers”. We take whatever price the big players pass down to us.
Retail traders are price takers, meaning they trade at prices established by larger players. While the number of retail traders is growing rapidly, the total volume of retail trading is estimated to be less than a mere 6% of the entire forex market. As a result, they do not drive long-term trends or determine exchange rates. Those forces are shaped higher up the market structure by banks, institutional investors, corporate flows, and central bank policy.
That said, retail traders still play a meaningful role at the margins. Their collective activity adds short-term liquidity, increases intraday volatility around key price levels, and contributes to the depth and accessibility of the modern forex market. While the global currency system would function without retail traders, their participation helps sustain the retail trading ecosystem and shapes how price behaves on shorter timeframes.
Forex Market Hours:
The forex market operates 24 hours a day, five days a week, creating a continuous global cycle of trading.
Unlike stock markets with rigid opening and closing times, forex market hours are dictated by the decentralised network of banks that pass trading orders from one financial centre to the next. The cycle starts in New Zealand/Australia, moves through Asia and Europe, and finishes in North America.
What time the forex market closes and opens
The forex market opens on Sunday at 5:00 PM New York time (EST) and closes on Friday at 5:00 PM New York time. The same opening and closing moments in London are late Sunday evening and late Friday evening for the close.
The forex market weekly open starts with the first major financial centre to open each week, which is Sydney. However, when it is Monday morning in Australia, it is still Sunday evening in both New York and London. This is why forex trading officially begins on Sunday evening in Western time zones.
Forex Market Opening Times by Major Financial Centre
Below are the local opening times that mark the start of the forex trading week in each major hub. These times reflect when institutional trading activity begins in that region.
- Sydney: Monday, 9:00 AM (local time)
- Tokyo: Monday, 9:00 AM (local time)
- Hong Kong: Monday, 9:00 AM (local time)
- Dubai: Monday, 8:00 AM (local time)
- Frankfurt: Monday, 8:00 AM (local time)
- London: Monday, 8:00 AM (local time)
- New York: Monday, 9:00 AM (local time)
The global market opening corresponds to:
- Sunday, 5:00 PM in New York
- Sunday, 10:00 PM in London
Forex Market Closing Times
The forex market closes in reverse order as the final trading session of the week ends.
- New York: Friday, 5:00 PM (local time)
- London: Friday, 10:00 PM (local time)
Once New York closes on Friday afternoon, trading effectively stops until the market reopens with the Sydney session on the following Monday.
The Best Time to Trade Forex
Many traders find that the best time to trade forex is during the most active hours when two sessions overlap, such as London and New York. However, this is a highly subjective matter, and there are many successful traders who find a different time of the day to be most optimal for their strategy and goals.
What is the best time to trade forex for you will depend on your specific situation. For example, some trading strategies work specifically in a low liquidity environment. The main thing is that it’s all fine as long as the strategy is profitable and working for you. Then, there is also the question of which timezone you live in. If you are trading actively and you are based in Asia or Australia, you will have a hard time catching the London - New York overlap as this is middle of the night in those places.
Is Forex Trading Profitable?
Forex trading is profitable for 13% of day traders over six months, while only 1% are consistently successful over five years. The statistics are clear that forex trading is not an easy feat.
Broker disclosures consistently show that 70% to 90% of retail trader accounts lose money. This high failure rate is not due to a lack of profit potential in the market, but rather a combination of poor risk management, over-leveraging, and emotional decision-making. Success in forex is a long-term endeavor based on skill, discipline, and capital preservation.
