What Is Forex, Really?

The Biggest Market You've Never Seen

Every day, roughly $9.6 trillion changes hands in the foreign exchange market. That number comes from the Bank for International Settlements (BIS) 2025 Triennial Survey, conducted in April 2025 (bis.org). It is up 28% from $7.5 trillion in 2022, and it dwarfs every other financial market on the planet:

Yet there is no building called "The Forex Exchange." There's no opening bell, no trading floor, no ticker tape. The forex market is a decentralized global network. Banks in London trade with banks in Tokyo. A hedge fund in New York buys euros from a broker in Sydney. A retail trader in Lagos sells dollars to their broker, who routes the order to a liquidity provider in Singapore.

It all happens electronically, 24 hours a day, 5 days a week.

What Actually Gets Traded?

In the stock market, you buy shares of a company. In forex, you trade currencies. But here's the key difference: currencies are always traded in pairs.

When you see "EUR/USD," that's a currency pair. It means you're trading the euro against the US dollar. If you "buy EUR/USD," you're buying euros and simultaneously selling dollars. If you "sell EUR/USD," you're selling euros and buying dollars.

This is different from stocks, where you simply buy Apple or sell Tesla. In forex, every trade is a bet that one currency will strengthen relative to another.

Why Does Forex Exist?

Forex exists because the world doesn't use one single currency. As long as countries have their own monetary systems, currencies need to be exchanged. There are three main reasons this happens every day:

1. International trade. When Toyota sells cars in the United States, it receives US dollars. But Toyota pays its workers in Japanese yen. So Toyota (or its bank) needs to convert USD to JPY. Multiply this by every company doing business across borders, and you get an enormous flow of currency.

2. Investment and capital flows. When a US pension fund invests in German government bonds, it needs to convert dollars to euros first. When a Japanese insurance company buys US Treasury bonds, it converts yen to dollars. Trillions of dollars flow between countries for investment purposes.

3. Speculation. Traders (including retail traders like you) buy and sell currencies with the goal of profiting from price changes. Speculators make up a significant portion of daily volume, though the exact percentage is debated. Some estimates put it at 80-90% of daily turnover.

A Brief History

Currencies haven't always been freely traded. After World War II, the Bretton Woods Agreement (1944) pegged most major currencies to the US dollar, and the dollar was pegged to gold at $35 per ounce. Exchange rates were fixed.

This system collapsed in 1971 when President Nixon ended the dollar's convertibility to gold (the "Nixon Shock"). Currencies began to float freely, and the modern forex market was born.

For decades, only banks and large institutions could trade forex. But starting in the late 1990s, online brokers opened the market to retail traders. Today, anyone with a computer and a few hundred dollars can open a forex trading account.

How Big Is $9.6 Trillion?

It's hard to grasp that number, so here's some context:

The forex market trades the equivalent of the entire US GDP (about $30 trillion) roughly every 3 days. Forex daily volume is about 19 times larger than all US stock exchanges combined.

This enormous volume means the forex market is the most liquid market in the world. For major currency pairs, you can buy or sell virtually any amount at any time during market hours, and you'll get filled almost instantly.

Why Should You Care?

Even if you never trade forex, it affects your life. The exchange rate between your currency and others determines:

• How much your vacation abroad costs
• The price of imported goods (electronics, cars, food)
• How competitive your country's exports are
• The value of your savings if you hold foreign assets
• Interest rates and inflation in your country (central banks use currency policy as a tool)

If you choose to trade forex, you're entering a market that is accessible (low minimum deposits), flexible (trade from anywhere, any time zone), and liquid (tight spreads, fast execution). But it is also a market where most participants lose money. We'll be honest about that throughout this course.