If you’re asking how forex works?, you’re referring to the global system that enables the exchange of one currency for another — whether for business, travel, or profit. The foreign exchange market (forex or FX) is decentralised, meaning it doesn’t operate through a central exchange. Instead, it functions 24 hours a day across major financial centres worldwide, making it the most liquid market on earth.

The Basics Of Forex Trading

Forex works by trading currency pairs, such as:

• EUR/USD – Euro vs. US Dollar
• GBP/JPY – British Pound vs. Japanese Yen
• AUD/USD – Australian Dollar vs. US Dollar

Every forex trade involves buying one currency while simultaneously selling another. The first currency in the pair is the base currency, and the second is the quote currency.

Example:
If EUR/USD is trading at 1.1000, it means 1 euro = 1.10 US dollars.

If you believe the euro will rise, you buy EUR/USD. If you believe it will fall, you sell EUR/USD.

Who Trades Forex?

• Central banks and governments
• Commercial banks and financial institutions
• Corporations conducting international business
• Hedge funds and investment managers
• Retail traders using online brokers

How Price Movements Occur

Currency prices move based on:

• Interest rate changes
• Inflation and economic growth
• Political stability and geopolitical events
• Market sentiment and speculation

These factors drive demand and supply, influencing the exchange rate of one currency relative to another.

Forex Market Sessions

Forex operates across four major sessions:

• Sydney
• Tokyo
• London
• New York

This structure ensures 24-hour access, with overlapping times offering the highest trading volume and volatility.

How Traders Profit

Traders make money by speculating on the direction of currency prices:

• If a trader buys GBP/USD at 1.2500 and sells it at 1.2600, they profit 100 pips.
• Profits and losses are calculated based on the lot size, leverage, and pip movement.

Forex Trading Tools And Platforms

Most trading happens on platforms like:

• MetaTrader 4 (MT4)
• MetaTrader 5 (MT5)
• cTrader
• Broker apps

These platforms allow traders to use charts, indicators, and order execution features in real time.

Leverage And Risk

Forex brokers often offer leverage, allowing you to trade larger positions with smaller capital. While this increases profit potential, it also magnifies risk.

Conclusion

If you’re asking how forex works?, the answer is: by facilitating the exchange of currencies through a global network of financial institutions, with prices driven by economic forces. Traders speculate on currency movements using platforms, analysis tools, and risk management techniques.

Want to understand every part of forex trading in depth? Start now with our structured Trading Courses at Traders MBA and master how the forex market truly works.