In plain language — In Forex, you do not observe the absolute value of one currency: you exchange one currency for another. EUR/USD, for example, expresses how many dollars are required for one euro.
Forex (foreign exchange, FX) is the set of markets in which currencies are exchanged. It is a global market that is largely over the counter (OTC): there is no single global order book, single official price or single exchange concentrating every transaction.
“Trading Forex” does not identify the contract. The market includes spot, outright forwards, FX swaps, currency swaps and options; regulated futures and retail products with different legal structures also exist.
How to read a currency pair
In a pair such as:
EUR/USD = 1.1000
- EUR is the base currency;
- USD is the quote currency;
- the number means 1.10 dollars for 1 euro.
Buying EUR/USD means taking long exposure to the euro and short exposure to the dollar for the notional amount considered. Selling the pair reverses the two exposures.
For a linear position of Q units of the base currency, before spread,
commissions, financing and conversion:
P&L in the quote currency ≈ Q × (exit price − entry price)
The result must then be converted into the account currency. Contracts and platforms may use different lots, multipliers and conventions.
Pips, spreads and quotes
A pip is a conventional increment in a quote; its decimal position is not universal across every pair or platform. Its monetary value depends on:
- the pair;
- position size;
- account currency;
- conversion rate;
- contract specifications.
Bid and ask come from the provider or venue being observed. The spread may widen when liquidity falls, during daily rollovers, announcements, opens, closes or shocks. A reference rate published by a central bank is informative: it is not necessarily a price at which a trade can be executed.
The main FX instruments
| Instrument | Essential structure | Common economic use |
|---|---|---|
| Spot FX | exchange with prompt settlement under market convention | conversion, payment, short-term exposure |
| Outright forward | exchange rate fixed today for a future date | hedging or future exposure |
| FX swap | a spot leg and an opposite forward leg | funding and foreign-currency liquidity management |
| Currency swap | exchange of cash flows and/or principal across currencies over a longer term | financing and hedging |
| standardized exchange-traded contract | hedging or margined exposure | |
| conditional right linked to an exchange rate | nonlinear hedging or speculation | |
| OTC contract with the provider | leveraged, financed retail exposure |
A retail “spot Forex” product may be a rolling position that is renewed and financed, rather than ordinary bank delivery of the two currencies. Terms, protections and classification depend on the contract and jurisdiction.
Market size and structure
The BIS Triennial Survey estimated average OTC turnover of approximately USD 9.6 trillion per day on a net-net basis in April 2025. FX swaps accounted for about 42%, spot for 31% and outright forwards for 19%. The U.S. dollar was on one side of 89.2% of trades.
Currency shares add up to 200%, not 100%, because every transaction involves two currencies. The figures are a snapshot of April 2025, not the volume of the retail market alone, a full year or any single venue.
The FX Global Code, updated in December 2024, sets out 55 principles of good practice for the wholesale market. It is a voluntary code: it does not create legal obligations or replace local rules.
Sessions and the “24-hour” market
Activity passes across Asia, Europe and the Americas and can appear almost continuous on weekdays. That does not mean liquidity is uniform:
- pairs and financial centres have periods of greater activity;
- weekends and holidays interrupt or reduce access;
- provider maintenance and rollovers create pauses or wider spreads;
- reopening after a closure may produce a gap.
The Market hours and sessions page explains the time dimension; the provider's contract determines the hours during which the client can actually trade.
Rates, forwards and rollover
The forward exchange rate is not an automatic forecast of the future spot rate. In a covered comparison it incorporates the relationship between spot and the interest rates of the two currencies; in practice, forward points and basis also reflect hedging demand, liquidity, counterparty risk and funding constraints.
A retail position held beyond a specified time may incur a rollover/swap credit or debit. The calculation depends on the pair, direction, rates, markup and provider conventions. It should not be confused with the exchange-rate move or assumed to remain stable over time.
Main risks
- leverage — small changes in the notional exposure can produce large changes in capital;
- counterparty — in retail OTC, the client may trade directly against the dealer;
- liquidity and execution — spreads, slippage and gaps change the result;
- rates and funding — rollover and forward points can be material;
- conversion — P&L must be translated into the account currency;
- settlement — both currency legs must perform within the required time;
- events and interventions — central-bank decisions, capital controls and discontinuities can alter prices and access;
- fraud and intermediary — authorization, segregation and contract terms must be checked in the relevant jurisdiction.
Common mistake — Calculating risk from the margin posted. Economic risk comes from the notional amount, the price distance and execution; margin is collateral required by the contract.
Checklist
- Which pair, base currency and quote currency?
- Deliverable spot, forward, future, option, CFD or rolling position?
- What are the effective notional amount and pip value?
- Who is the counterparty and where is the price formed?
- Which spreads, commissions, markups and rollover charges apply?
- In which currency are P&L and margin settled?
- Which hours, stop-out thresholds and liquidation rules does the provider use?
- Which authority registers or supervises the intermediary?
Sources
- Bank for International Settlements, OTC foreign exchange turnover in April 2025, Triennial Central Bank Survey, 30 September 2025.
- Bank for International Settlements, Covered interest parity lost: understanding the cross-currency basis, BIS Quarterly Review, 18 September 2016 — the relationship between spot, forwards, interest rates and the funding basis.
- Global Foreign Exchange Committee, FX Global Code, updated December 2024 — wholesale principles that do not replace regulation.
- U.S. Commodity Futures Trading Commission, Eight Things You Should Know Before Trading Forex — retail OTC risks in the U.S. regulatory context.
- European Central Bank, Euro foreign exchange reference rates — informative rates, not recommended as executable prices.