What is forex and how does the currency market work in 2026?

The foreign exchange market (forex or FX) is the global market where currencies are bought and sold, for example euros against dollars, and it’s the largest market in the world by volume: according to the Bank for International Settlements (BIS), it turned over $9.6 trillion per day in April 2025. It has no physical location and no central exchange: it runs over the counter (OTC), across a network of banks, electronic platforms and brokers that operates 24 hours a day, Monday to Friday.

What is the forex market?

Forex is short for foreign exchange. Every trade means buying one currency and selling another at the same time, which is why you always trade currency pairs: if you buy EUR/USD, you’re buying euros and selling dollars.

An importer paying in dollars, a European fund buying US bonds or a central bank intervening in its currency all take part in the same market as a retail trader.

Market size and participants according to the BIS

The BIS Triennial Survey (September 2025, April data) is the official benchmark:

• Spot market: about $3 trillion per day, 31% of the total. The rest is FX swaps, forwards and options.
• Most traded currencies: US dollar (89% of trades), euro (28.9%), yen (16.8%) and pound (10.2%).
• Who trades: 46% of volume is between reporting dealers (interdealer), 50% with other financial institutions (smaller banks, institutional investors and hedge funds) and only 5% with non-financial customers.
• Where it’s traded: the United Kingdom (38%), the United States (19%), Singapore and Hong Kong.

How forex works: a layered OTC market

Forex has no central order book: each participant gets prices from its counterparties, which is why two brokers can show EUR/USD a fraction of a pip apart. The structure works in tiers:

1. Interbank market: the big global banks quote each other and set the reference price.
2. Electronic platforms and ECNs: electronic communication networks that aggregate prices from several banks and let institutions match orders with each other.
3. Liquidity providers: banks and non-bank firms that stream prices to brokers and funds.
4. Retail brokers: give individual traders access, usually through CFDs or leveraged spot contracts. They earn from the spread, commissions or both.

For you, the cost of trading depends on your provider’s spread and commission. Platforms like cTrader show market depth and the spread in real time, which helps you see that cost before you enter.

Currency pairs: majors, minors and exotics

Pairs are grouped by liquidity. The more liquid a pair, the tighter the spread tends to be and the more predictable the execution.

Type	What it includes	Examples	Spread and behavior
Majors	The US dollar against another main currency	EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD, NZD/USD	Tightest spreads, deepest liquidity. EUR/USD is the usual starting point.
Minors (crosses)	Two main currencies without the dollar	EUR/GBP, EUR/JPY, GBP/JPY, AUD/JPY	Somewhat wider spreads. GBP/JPY is known for big ranges.
Exotics	A main currency against an emerging-market one	USD/MXN, USD/ZAR, USD/TRY, EUR/PLN	Wide spreads, price gaps and high swaps. Not recommended for beginners.

According to the BIS, the ten most traded pairs all include the dollar. When you’re starting out, focusing on one or two major pairs keeps costs down.

How to read a forex quote

In EUR/USD = 1.0850, the euro is the base currency and the dollar the quote currency: 1 euro costs 1.0850 dollars. If the price rises, the euro is strengthening against the dollar; if it falls, it’s weakening.

The platform shows two prices:

• Bid: 1.0850, the price at which you can sell.
• Ask: 1.0851, the price at which you can buy.
• Spread: the difference, here 0.0001, or 1 pip. It’s your entry cost: every trade starts in the red by the amount of the spread.

On most pairs the pip is the fourth decimal place (0.0001). On yen pairs it’s the second (0.01). How pip value is calculated on each pair is covered in our guide to pips and lots in forex.

What moves currency prices

These are the factors that move currencies most:

Factor	Data to watch	Typical effect
Interest rates	Decisions by the Federal Reserve, the ECB, the Bank of England and the Bank of Japan	Higher rates, or expectations of hikes, tend to strengthen a currency.
Inflation	CPI and PCE in the US, HICP in the eurozone	Higher-than-expected inflation often signals higher rates ahead.
Jobs	US nonfarm payrolls (NFP) and unemployment rate	A strong print usually supports the dollar; it causes volatility spikes within seconds.
Monetary policy	Central bank statements, minutes and press conferences	The tone (more hawkish or more dovish) can move markets more than the decision itself.
Global risk	Geopolitical tension, stock market sell-offs	In risk-off moments the dollar, the yen and the Swiss franc tend to strengthen.

What moves price is the gap between the actual figure and what the market expected. Check the economic calendar before opening positions.

Forex market sessions and trading hours

Approximate times in November (US standard time):

Session	New York (ET)	London (GMT)	India (IST)	Sydney (AEDT)	Most active pairs
Sydney	5:00 p.m. – 2:00 a.m.	22:00 – 07:00	03:30 – 12:30	09:00 – 18:00	AUD/USD, NZD/USD
Tokyo	7:00 p.m. – 4:00 a.m.	00:00 – 09:00	05:30 – 14:30	11:00 – 20:00	USD/JPY, AUD/JPY
London	3:00 a.m. – 12:00 p.m.	08:00 – 17:00	13:30 – 22:30	19:00 – 04:00	EUR/USD, GBP/USD, EUR/GBP
New York	8:00 a.m. – 5:00 p.m.	13:00 – 22:00	18:30 – 03:30	00:00 – 09:00	EUR/USD, USD/CAD, USD/MXN

The highest-volume stretch is the London–New York overlap, from 8:00 a.m. to 12:00 p.m. New York time (1:00 to 5:00 p.m. in London). To see how to trade that window, read session liquidity strategies for EUR/USD, DAX and Nasdaq.

Forex vs stocks: how it differs from the stock market

Criterion	Forex market	Stock market
Structure	Decentralized OTC, no single order book	Centralized exchange (NYSE, Nasdaq, London Stock Exchange) with a public order book
Hours	24 hours, Sunday to Friday	Fixed hours per exchange (NYSE: 9:30 a.m. – 4:00 p.m. New York time)
What you buy	A pair: the relative value of two currencies	A share of a company
Retail leverage	Up to 30:1 (EU) or 50:1 (US) on major pairs	Low: generally 2:1 in margin accounts
Direction	Buying or selling short is equally simple	Short selling requires borrowing shares
Costs	Spread + commission; swap if you hold overnight	Commission, exchange fees and local taxes

Futures, by contrast, do trade on an exchange (CME); the comparison is in forex vs futures.

Retail forex regulation: ESMA and the CFTC

• European Union (ESMA): since August 2018 it has capped CFD leverage for retail clients at 30:1 on major pairs, 20:1 on non-major pairs, gold and major indices, and 10:1 on other commodities. It also requires margin close-out at 50% of minimum margin and negative balance protection.
• United States (CFTC and NFA): requires a minimum security deposit of 2% of notional value on major pairs (50:1) and 5% on the rest (20:1). Brokers must be registered and be NFA members.

Elsewhere, regulation varies by country. Check the broker’s license on the regulator’s public register, and be wary of anyone promising fixed returns.

Worked EUR/USD trade with pips and lots

A $25,000 simulated account with a $450 daily loss limit. You risk no more than $150 per trade (a third of the daily limit):

1. Entry: buy at 1.0851 (ask price). Stop loss at 1.0831, 20 pips away. Target at 1.0891, 40 pips away.
2. Position size: $150 ÷ 20 pips = $7.50 per pip. At $10 per pip per lot, that’s 0.75 lots; round down to 0.70 lots ($7 per pip).
3. Actual risk: 20 pips × $7 = $140.
4. If the target is hit: 40 pips × $7 = $280, a 1:2 risk/reward ratio.
5. Margin used: 0.70 lots is 70,000 euros, about $75,957 of notional value. At 1:100 leverage, about $760 is tied up. At 1:30, about $2,532.

Leverage doesn’t change the trade’s risk: that’s set by the distance to your stop and your lot size.

Risks of currency trading

• Leverage: at 30:1, a 1% move against you equals 30% of the margin posted.
• News: on NFP or a rate decision, price can jump dozens of pips and the spread can widen.
• Cost of holding positions: the overnight swap depends on the rate differential and is often high on exotics.

Forex trading for beginners: how to get started step by step

1. Learn the mechanics: what a pip, a lot, the spread and margin are. Our trading for beginners guide covers the basics.
2. Pick one or two major pairs (EUR/USD and GBP/USD, for example) and a session you can trade consistently.
3. Practice on a demo account for several weeks and log every trade.
4. Write down your risk rules: risk per trade, max daily loss and trades per day.
5. Move to an environment with rules and consequences: a simulated funded account enforces daily loss and drawdown limits, with your cost capped at the price of the account.

A demo teaches you the platform, but it doesn’t reproduce the pressure of having something at stake. In forex funded accounts we explain how they work and what to look for when choosing one.

Practice forex trading with Emerge Profit (EmergeFX)

EmergeFX is Emerge Profit’s simulated trading product for forex, indices and commodities, traded on cTrader and DXtrade. There are two ways in:

• EmergeFX Evaluation (from $68): 1-Step with a 10% target, 3% daily drawdown and 6% max, at 1:30 leverage; 2-Step with 8% and 5% targets, 5% daily drawdown and 10% max, at 1:100 leverage. 5 minimum trading days, 50% consistency rule, no time limit and an 80% to 90% profit split once you pass. The challenge fee is refunded with your first reward (100% on the 1-Step, 125% on the 2-Step). Static drawdown and weekend holding allowed.
• EmergeFX Instant Funding (from $120): no evaluation phase, static drawdown, 1:100 equivalent leverage, swing and news trading allowed and a 50% consistency rule. The 25K account has a $450 daily loss limit and a $1,500 drawdown, as in the example above.

General policies: hedging is banned, every trade must last at least 10 seconds, copy trading is allowed only between your own accounts and abrupt changes in position size are not permitted (Operational Consistency and Position Sizing Rule).

Forex market: FAQ

Sources

• Bank for International Settlements (BIS) – BIS publishes results of global survey on FX and interest rate derivatives markets (September 30, 2025; accessed November 2026).
• Bank for International Settlements (BIS) – OTC foreign exchange turnover in April 2025 (Triennial Survey 2025; accessed November 2026).
• ESMA – ESMA adopts final product intervention measures on CFDs and binary options (2018; accessed November 2026).
• CFTC – 17 CFR § 5.9, Security deposits for retail forex transactions (accessed November 2026).

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