Forex · Beginner · 4 min

How the currency market works

You can describe the size and structure of the currency market, who trades in it, and how private traders reach it.

The largest market

Every foreign holiday, every imported phone and every investment abroad requires one currency to be exchanged for another. Added up, those exchanges form the largest financial market in the world.

Forex, short for foreign exchange, is also one of the most advertised markets for private traders. This lesson explains how the real market works, who trades in it, and how different a private trader's access is from that of a bank.

Big, dollar-heavy, OTC

The foreign exchange market is where currencies are traded against each other. Every trade sets an exchange rate: the price of one currency in terms of another.

The Bank for International Settlements surveys the market every three years. In April 2025 it counted:

About 9.6 trillion dollars traded per day, 28% more than in 2022.
The US dollar on one side of 89% of all trades. The euro followed with about 29%, the yen with about 17%.
FX swaps as the largest instrument, used mostly by banks and companies to manage funding and hedge.

The market has no central exchange. As the New York Fed explains, trading moves around the globe through the day, from Asia to Europe to America, between banks, dealers, funds, companies and central banks. That makes it an over-the-counter market, as described in the lesson on OTC trading.

Most of the volume is not speculation by individuals. It is payments, hedging, investment flows and professional trading.

Private traders usually reach forex through a retail broker or dealer, often via CFDs or rolling spot contracts. The dealer quotes its own buy and sell prices and is often the counterparty. The SEC notes that forex dealers trade for their own account and may not offer the best price available. These products are usually traded with leverage, a topic later in this rubric.

Same pair, different deal

A company. A fictional German company must pay a US supplier 1 million dollars. Its bank sells euros and buys dollars for it in the interbank market, at a price very close to the best available.
A private trader. In Berlin, a trader buys the same pair, euro against dollar, in a trading app. The app's dealer quotes the price, adds a spread and takes the other side, or passes the trade on.

Both trades are about the same exchange rate. One is a real currency payment through the interbank market. The other is a contract with a dealer that pays out the price change.

Common mistakes

"Huge volume means easy profits." Most volume is hedging and professional trading.
Assuming you trade in the interbank market. You usually trade with a dealer.
Ignoring the counterparty. It matters who quotes your price and takes the other side.
Thinking forex is closed at weekends only. Liquidity also changes a lot through each day.

The takeaway

The currency market is the largest market in the world, mostly traded over the counter between banks. Private traders usually trade with a dealer.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the currency involved in most foreign exchange trades.

Tap the chart.

The BIS reports the dollar on one side of 89.2% of all trades in April 2025.
2How much was traded in the currency market per day in April 2025, according to the BIS?

The BIS Triennial Survey counted about 9.6 trillion dollars per day, up 28% from 2022.
3Where do most currency trades take place?

Forex has no single exchange. Trades happen directly between participants, as in the lesson on OTC markets.
4Who is usually the counterparty when a private trader buys a currency pair at a retail broker?

The SEC notes that retail forex dealers often act as counterparty and may not offer the best price available.

of 4 correct.