How the Forex Market Works
The forex market is the global marketplace where currencies are bought and sold. Unlike stock markets, forex has no central exchange; instead, it operates as an over-the-counter (OTC) market, meaning trades happen directly between participants like banks, corporations, governments, and individual traders.
In forex, currencies are traded in pairs, such as EUR/USD (euro vs. US dollar). The first currency is the “base,” and the second is the “quote.” The price shows how much of the quote currency is needed to buy one unit of the base currency. For example, if EUR/USD is 1.10, it means 1 euro costs 1.10 dollars.
The market operates 24 hours a day, five days a week, across major financial centers: London, New York, Tokyo, and Sydney. Prices fluctuate constantly based on supply and demand, which are influenced by economic data, interest rates, geopolitical events, and market sentiment.
Liquidity is extremely high, making it easy to buy or sell large amounts of currency quickly. Traders use tools like technical analysis, economic indicators, and risk management strategies to profit from price movements.
In short, the forex market works as a continuous, global network of buyers and sellers, where currency values reflect worldwide economic and political conditions.
