What Is Forex? A Beginner’s Guide to the Foreign Exchange Market

Risk warning: This is educational content, not financial, investment or tax advice. Trading carries a substantial risk of loss and is not suitable for everyone. Most retail traders lose money. Never trade with money you cannot afford to lose.

What Is Forex? A Beginner’s Guide to the Foreign Exchange Market

Every time you swap pounds for euros at the airport, pay for something on a US website, or a UK company buys parts from Japan, currencies change hands. Add all of that up, then add banks, governments, funds and traders, and you get the largest financial market in the world.

According to the Bank for International Settlements, the forex market turned over roughly $9.6 trillion a day in April 2025.¹ The UK accounts for around 38% of that, more than any other country.¹ That puts London at the centre of global currency trading.

Most people use forex without ever thinking about it. This guide explains what it is, how it works, who trades it and why, in plain English. It’s written for someone starting from zero.

What’s in this guide

• What forex is, in one sentence
• How currency pairs work
• Who trades forex, and why
• Why exchange rates move
  When the market is open (in UK time)
• How retail traders access forex in the UK
• The risks you need to understand first
• FAQs and a glossary
• Quick answer: what is forex?

What forex is, in one sentence

Forex (FX), short for foreign exchange, is the global market where currencies are bought and sold against each other. There’s no central exchange. It’s a network of banks, brokers and institutions trading electronically, 24 hours a day, five days a week.

• Currencies are always traded in pairs, such as GBP/USD.
• Prices move constantly with interest rates, economic data, politics and sentiment.
• Traders try to profit from those price changes by buying one currency and selling the other at the same time.

What is forex, in more detail?

The word itself, “Forex” is a blend of foreign exchange. It’s the kind of shorthand dealers use to save time on the trading floor. Nobody knows exactly when it was coined, but it was in print in banking publications by the 1970s. That’s the same decade the modern currency market took shape, as major currencies stopped being fixed to the US dollar and began to float freely.

You’ll also see it written as FX, which is the abbreviation most banks and professionals use today.

Forex as a concept, is simply the exchange of one currency for another at an agreed price, called the exchange rate.

Some of this happens for practical reasons like a British retailer paying a Chinese supplier needs yuan and a US tourist in London needs pounds. Much of the volume, though, comes from institutions managing risk, investing or speculating on where rates will go next.

Unlike the London Stock Exchange, forex has no single building or central marketplace. It’s over-the-counter (OTC). Trades happen directly between participants through electronic networks, and major centres like London, New York, Singapore and Tokyo hand over to each other as the day moves around the world.

Because the market never really sleeps during the week, prices can react to global events as they happen, often outside normal working hours.

Its scale also makes forex highly “liquid”. With around $9.6 trillion changing hands every day,¹ large volumes can usually be traded with relatively little impact on price. That’s especially true of the major pairs such as EUR/USD and GBP/USD, and it’s why their spreads tend to be the tightest.

Liquidity isn’t constant, though. It’s deepest when London and New York overlap (roughly 13:00–17:00 UK time) and thinnest late on Friday, over holidays and around the Sunday open. Exotic pairs are far less liquid at any time. Thinner markets mean wider spreads and sharper, less predictable moves.

We have a glossary at the end of this document, but these definitions will come in handy!

• Major pair: a heavily traded pair including the US dollar
• Cross (minor): a pair of major currencies without the US dollar
• Exotic pair: a major currency paired with a smaller or emerging-market currency

How currency pairs work

A currency only has value compared with another currency, so forex is always quoted in pairs.

Take GBP/USD at 1.2800:

If you think the pound will strengthen against the dollar, you’d buy GBP/USD. If you think it will weaken, you’d sell it.

That’s why every forex trade is two views at once: one currency rising relative to another.

The three types of pair

The US dollar is on one side of 89.2% of all forex trades. The euro is on one side of 28.9%, the yen 16.8% and sterling 10.2%.¹ For a UK beginner, GBP/USD and EUR/USD are natural pairs to learn on: they’re liquid, heavily traded, and move on news you’ll already follow.

Who trades forex, and why?

Retail traders are a small part of the market by volume. But access has never been easier, which is exactly why understanding it properly matters.

Why do exchange rates move?

Currency prices reflect supply and demand. Here’s what drives them:

• Interest rates. Higher rates tend to attract capital, which can strengthen a currency. Bank of England decisions move GBP pairs.
• Economic data. Inflation, employment, GDP and retail sales figures shift expectations.
• Politics and policy. Elections, budgets and trade agreements can all reprice a currency quickly.
• Risk sentiment. In uncertain periods, money often flows to currencies seen as safe havens, such as the US dollar, Japanese yen and Swiss franc.
• Unexpected events. Shocks can cause sharp, fast moves in either direction.

Nobody can predict these moves reliably. What traders can do is use a clear, rule-based method to decide when to act and how much to risk. More on that in our guide to trading strategies.

When is the forex market open? (UK time)

Forex runs from Sunday evening to Friday evening UK time, but the hours aren’t equal.

The busiest part of the trading day falls in the UK afternoon. That’s convenient if you’re learning around work.

The key terms you’ll want to know right away

There are a lot of terms in regard to leverage as well. Our guide to Understanding Forex Leverage covers leverage and margin in much more depth.

How do people trade forex in the UK?

Most UK retail traders aren’t exchanging physical currency. They trade derivatives that track the price of a currency pair:

• Spread betting. You stake an amount per point of movement. It’s a UK-specific product.
• CFDs (contracts for difference). You exchange the difference in price between opening and closing a position.

Both are leveraged, and they’re taxed differently. Our How to Start Forex Trading guide covers the tax side.

Firms offering these products to UK retail clients must be authorised by the Financial Conduct Authority (FCA). That brings real protections:

• Leverage caps. 30:1 on major currency pairs, lower on more volatile ones.
• Negative balance protection. You can’t lose more than the funds in your account.
• Margin close-out at 50%. Positions are closed when your funds fall to half the required margin.
• FSCS cover. Up to £85,000 per person, per firm, if an FCA-authorised firm fails. This doesn’t cover trading losses.

Always check a firm on the FCA’s Financial Services Register at register.fca.org.uk before depositing anything.

The risks nobody puts in the adverts

• Leverage cuts both ways. At 30:1, a 1% move against you costs 30% of your margin.
• Most retail accounts lose money. FCA-authorised brokers have to publish the percentage. It’s typically around 70%.
• Costs add up. Spreads, commission and overnight swap charges all come off your results.
• Psychology is the hard part. The urge to win back a loss straight away is how bad days become lost accounts.
• Scams target beginners. Treat guaranteed returns, paid “signal groups” and firms missing from the FCA Register as red flags. Guaranteed returns don’t exist in trading.

This is why we put risk management at the heart of everything we teach: a defined stop loss on every trade, and a fixed, small percentage of your account at risk each time.

How to go from “what is forex?” to your first trade

Understanding what forex is is step one. Learning to trade it takes structure: the mechanics, a written trading plan, a tested strategy and honest review of every trade.

Nobody can remove the learning curve. What good coaching does is shorten it. It shows you in an afternoon what might otherwise take months to discover alone, and puts a second pair of eyes on your trades while the decisions are still fresh. That’s the whole reason we teach the way we do here at LearnToTrade.

If you want a proper charting tool as you learn, we recommend SmartCharts. It has a full training syllabus built in.

Frequently asked questions

What does forex stand for? Foreign exchange. It’s the market where currencies are exchanged against each other. You’ll also see it called FX.

Is forex trading legal in the UK? Yes. It’s legal and regulated. Firms offering forex to UK retail clients must be FCA-authorised. Always verify a firm on the Financial Services Register first.

How big is the forex market? Around $9.6 trillion a day in April 2025, according to the Bank for International Settlements. That makes it the largest financial market in the world.¹

What is the most traded currency? The US dollar, on one side of 89.2% of all trades. Sterling is fourth, at 10.2%.¹

Can anyone trade forex? Anyone over 18 can open an account with an FCA-authorised broker. You shouldn’t trade live, though, until you understand pairs, pips, leverage, margin and stop losses, and have practised on a demo account.

Is forex trading profitable? It can be, but most retail traders lose money and nobody can promise profit. What you control is your education, your discipline and how much you risk on each trade.

Why do currencies move? Mainly interest rates, economic data, politics and market sentiment. They shift supply and demand for each currency.

Glossary

• Forex (FX): the global market for exchanging currencies
• Exchange rate: the price of one currency expressed in another
• Currency pair: two currencies quoted against each other, e.g. GBP/USD
• Base currency: the first currency in a pair
• Quote currency: the second currency, the one the price is expressed in
• Major pair: a heavily traded pair including the US dollar
• Cross (minor): a pair of major currencies without the US dollar
• Exotic pair: a major currency paired with a smaller or emerging-market currency
• Over-the-counter (OTC): traded directly between parties rather than on a central exchange
• Pip: the standard smallest price increment, usually the fourth decimal place
• Spread: the difference between the buy and sell price
• Leverage: the ratio of position size to the deposit required
• Margin: the deposit needed to open and hold a leveraged position
• Liquidity: how easily something can be bought or sold without moving the price
• Safe haven: a currency that investors tend to buy in uncertain times

Conclusion: five things to take away

1. Forex is the exchange of one currency for another. It’s the largest financial market in the world, and London is at its centre.
2. Currencies trade in pairs. Buying one always means selling the other.
3. Rates move on interest rates, data, politics and sentiment. Nobody can predict them reliably, which is why rules matter.
4. In the UK, retail forex is traded through spread bets or CFDs. Always use an FCA-authorised firm and check it on the Register yourself.
5. Understanding comes before trading. Learn the mechanics, build a plan and put risk management first.

Risk disclaimer: This article is educational content and does not constitute financial, investment, trading or tax advice. Forex, spread betting and CFD trading carry a substantial risk of loss and are not suitable for every investor. The majority of retail investor accounts lose money. Leverage magnifies both gains and losses. Leverage limits, product availability, tax treatment and regulation vary by country, depend on individual circumstances and change over time. Verify the current rules with your local regulator and, for tax, with HMRC or a qualified adviser. Past performance is not a reliable indicator of future results. Trade only with capital you can afford to lose, and seek independent advice if you are unsure.

—–

¹ Bank for International Settlements, OTC foreign exchange turnover in April 2025, Triennial Central Bank Survey, 30 September 2025: bis.org/statistics/rpfx25_fx.htm