Forex: what is it and how does it work in 2026?

What is forex?

Forex, short for Foreign Exchange (also known as the FX market), is the market where the world's currencies are traded. Every time a company pays an overseas supplier, a tourist exchanges money before a trip, or a trader speculates on the euro against the dollar, a forex transaction takes place.

With a daily volume estimated at $7.5 trillion according to the Bank for International Settlements (BIS), forex is by far the most liquid and largest market in the world. To put this in perspective, the New York Stock Exchange (NYSE), the largest stock exchange, processes roughly $25 billion per day. Forex represents approximately 300 times that volume.

Unlike stock markets with fixed hours, forex is a decentralized (OTC, Over-The-Counter) market. There is no central exchange. Transactions occur directly between participants via electronic networks. This structure keeps the market open 24 hours a day, from Sunday evening (Sydney open) to Friday evening (New York close).

Currency pairs: major, minor, and exotic

In forex, you never trade a currency in isolation. You always trade a currency pair, meaning the value of one currency relative to another. For example, EUR/USD represents the value of the euro against the US dollar.

In a pair, the first currency is the base currency, and the second is the quote currency. If EUR/USD = 1.0850, it means one euro is worth 1.0850 dollars. If the price rises to 1.0900, the euro has strengthened against the dollar.

Forex market hours: sessions and overlaps

Forex operates continuously thanks to four major trading sessions spread around the globe. Each session has its own characteristics in terms of volume and volatility.

The most interesting times to trade are during session overlaps. The London-New York overlap (1 PM to 5 PM GMT) concentrates the highest volume and strongest volatility of the day. This is when the largest price movements occur and spreads are at their tightest.

Who participates in the forex market?

The forex market is driven by a diverse range of participants, each with different objectives.

Central banks intervene to manage their country's monetary policy. The ECB (European Central Bank), the Fed (US Federal Reserve), or the BoJ (Bank of Japan) can buy or sell currencies on a massive scale to stabilize their currency or achieve economic targets. Their interest rate decisions directly impact currency prices.

Commercial and investment banks (JPMorgan, Goldman Sachs, Deutsche Bank) execute the largest volume of forex transactions, both for their clients and for their own accounts. They form the interbank market, the core of forex trading.

Multinational corporations use forex to convert their foreign revenues into their home currency. A US company selling in Europe needs to convert its euros into dollars. This activity generates a substantial volume of transactions.

Hedge funds and asset managers actively speculate on currencies using quantitative and macroeconomic strategies. Some funds, like Bridgewater Associates, are among the largest participants in the forex market.

Retail traders account for approximately 5-6% of total volume. Thanks to online brokers and leverage, they can access the market with relatively modest capital. This segment has seen considerable growth in recent years.

How to start trading forex

To access the forex market as a retail trader, you need three essential elements: a regulated broker, a trading platform, and a strategy.

Choose a regulated forex broker

Your broker is the intermediary between you and the market. Choosing a regulated broker is essential for the safety of your funds. RaiseFX, based in Johannesburg, South Africa, and regulated by the FSCA (licence #50506), provides access to over 500 CFD/Forex instruments on the MetaTrader 5 platform. With leverage up to 1:500, competitive spreads, and fast execution, it is a quality option for forex trading.

Understand the basic mechanics

When you "buy" EUR/USD, you are buying euros and simultaneously selling dollars. If EUR/USD moves from 1.0850 to 1.0900, you have gained 50 pips. With a standard lot (100,000 units), each pip is worth approximately $10. With a mini lot (10,000 units), each pip is worth approximately $1.

Leverage allows you to control positions larger than your capital. With 1:100 leverage, $1,000 in capital lets you control a $100,000 position (one standard lot). However, leverage also amplifies losses. Use it cautiously, especially as a beginner.

Practice and go live

Always start with a demo account to familiarize yourself with the platform and test your approach risk-free. When you are ready to go live, start small and apply strict risk management (never risk more than 1-2% of your capital per trade).

For traders seeking significant trading capital without investing their own money, RaiseMyFunds is an FSCA-regulated prop firm (licence #50506) based in Johannesburg that offers an Instant Funding model. Accounts from $50,000 to $400,000 are available with no challenge or evaluation, a 70-85% profit split, no daily drawdown, and no consistency rule.

Frequently asked questions