Introduction

The foreign exchange market – better known as forex or FX – is where currencies are bought and sold. It’s the biggest and most liquid market in the world, with trillions of dollars traded every single day. Unlike stock exchanges that operate during specific hours, forex runs 24 hours a day, five days a week, connecting traders from London to Tokyo to New York in a seamless global network.

Why does forex exist?

At its core, forex exists because different countries use different currencies, and people, companies, and governments need to exchange them.

• International trade: An importer in the UK buying electronics from Japan needs Japanese yen to pay the supplier.
• Tourism: A traveler from Europe visiting the USA needs to convert euros into US dollars.
• Investment flows: Large funds may invest in overseas markets, requiring them to buy foreign currencies.
• Speculation: Traders buy and sell currencies to profit from changes in exchange rates.

How the forex market works

The forex market is decentralized—meaning it’s not run from a single exchange like the stock market. Instead, it’s an over-the-counter (OTC) network where banks, brokers, hedge funds, and retail traders connect electronically.

Key participants include:

• Central banks: Influence currency value through interest rates and monetary policy.
• Commercial banks & financial institutions: Handle large-scale currency transactions.
• Corporations: Exchange currencies for international business.
• Brokers: Provide trading platforms for retail traders.
• Retail traders: Individuals trading for profit or investment.

How forex is traded

The foreign exchange market operates differently from many other financial markets. Unlike shares or commodities, which are typically traded on centralized exchanges such as the New York Stock Exchange or London Stock Exchange, forex has no single physical location.

Instead, currency trading happens through a global network of banks, financial institutions, and brokers in what’s called the over-the-counter (OTC) market. Here, prices are constantly being updated as participants around the world buy and sell currencies in real time.

Because forex follows the global flow of business and finance, it operates 24 hours a day, five days a week. As one trading session closes in one part of the world, another opens elsewhere—creating a continuous cycle that moves from Asia to Europe to North America. Brokers like Sky Links Capital stream live prices throughout the week, giving traders access to the market whenever it’s active.

Advantages of Trading Forex

• High Liquidity: Forex is the world’s most liquid market, with trillions traded daily. This means trades can be opened or closed almost instantly, often with minimal slippage and precise execution.
• 24/5 Market Hours: The market operates around the clock from Monday to Friday, moving through global sessions in Sydney, Tokyo, London, and New York. You can trade at nearly any time that suits your schedule.
• Leverage: Forex often provides higher leverage than other markets, letting you control larger positions with smaller capital. While this can boost profits, it also increases potential losses—risk management is key.
• Low Transaction Costs: Most forex trades have relatively low costs, with the main expense being the spread—the difference between the buy (ask) and sell (bid) price. On major currency pairs like EUR/USD, spreads are typically very tight, sometimes less than one pip. This means more of your potential profits stay in your pocket rather than going to trading fees.