Forex market
Family I · Instruments
Not to be confused with forex market structure, forex, forex card.
Forex market is the worldwide over-the-counter network for exchanging one currency for another. It has no single physical location or central exchange; trading occurs through interbank dealers, electronic platforms and brokers across overlapping time zones. Prices appear as quotes for currency pairs, such as EUR/USD, and are driven by supply and demand, interest-rate differentials and macroeconomic data.
Structure and participants
The market is organised in tiers. At the top, the interbank market involves the largest commercial and central banks trading directly or through brokers. Below that, smaller banks, hedge funds, corporations and retail brokers access liquidity through prime brokers or electronic communication networks. Retail traders typically trade via a broker that aggregates quotes and may act as counterparty.
Because it is over-the-counter, there is no single official volume figure; surveys by central banks and industry bodies provide estimates that vary by methodology and reporting period.
Quotation and settlement
Currencies are quoted in pairs. The first currency is the base and the second is the quote currency; the price states how much of the quote currency is needed to buy one unit of the base. A bid is the price at which the dealer buys the base, and an ask is the price at which the dealer sells it. The difference is the spread.
Spot transactions usually settle in two business days, though some pairs settle in one day and non-deliverable forwards settle in cash. Settlement conventions and value dates vary by currency pair and jurisdiction.
Worked example
Trading hours and regulation
The market operates 24 hours a day from Sunday evening to Friday evening, following the opening and closing of financial centres in Sydney, Tokyo, London and New York. Regulation differs by country: retail forex brokers are supervised by national authorities, and the rules on leverage, margin and reporting vary between jurisdictions.
Often confused with
- forex market structure
- Forex market structure is the decentralised, over-the-counter network of banks, brokers, and electronic venues where currencies trade, characterised by continuous quoting, no central exchange, and a hierarchy of participants.
- forex
- Forex is the global over-the-counter market where national currencies are exchanged in pairs, with prices quoted as the amount of one currency required to buy another.
- forex card
- A forex card is a prepaid payment card denominated in one or more foreign currencies, loaded in advance and used to make purchases or withdraw cash abroad without converting from the home currency at the point of sale.