Forex, short for foreign exchange, is the global marketplace where currencies are bought and sold against each other. Every time a traveller swaps dollars for euros, or a company pays a supplier in another country, a forex transaction takes place. Traders participate in the same market, but with a different goal: they try to benefit from changes in exchange rates over time.
How the forex market is structured
Unlike a stock exchange with a single physical location, forex is an over-the-counter (OTC) network. Large banks, central banks, corporations, funds and retail brokers connect electronically. Prices are formed by the constant flow of orders across this network, which is why quotes can differ slightly between providers.
The trading sessions
Activity moves with the sun across the major financial centres. Liquidity and volatility tend to change depending on which sessions are open.
| Session | Main centre | Typical character |
|---|---|---|
| Asia-Pacific | Tokyo, Sydney | Often calmer; yen and Australian dollar pairs active |
| European | London | Highest share of global volume; strong liquidity |
| North American | New York | Busy overlap with London; US data releases |
Currency pairs explained
Currencies are always quoted in pairs, such as EUR/USD. The first currency is the base, the second is the quote. If EUR/USD is 1.0850, one euro costs 1.0850 US dollars. Buying the pair means expecting the base currency to strengthen; selling it means expecting it to weaken.
- Major pairs include the US dollar and another large economy's currency, e.g. EUR/USD, USD/JPY, GBP/USD.
- Minor pairs (crosses) exclude the US dollar, e.g. EUR/GBP or AUD/JPY.
- Exotic pairs combine a major currency with an emerging-market currency and usually have wider spreads.
Pips, lots and spreads
Pips
A pip is the standard unit of price movement. For most pairs it is the fourth decimal place (0.0001). For pairs including the Japanese yen, it is usually the second decimal place.
Lots
Position size is measured in lots. A standard lot is 100,000 units of the base currency, a mini lot is 10,000 and a micro lot is 1,000. Smaller lots reduce the money value of each pip movement, which matters a great deal for beginners.
Spreads and costs
The spread is the difference between the buy (ask) and sell (bid) price. It is one of the main trading costs, alongside commissions and overnight financing charges. When comparing platforms — including those discussed in our PFW Management review — understanding how costs are presented is an essential first step.
Leverage and margin
Many forex products are offered with leverage, which lets a trader control a larger position with a smaller deposit called margin. Leverage magnifies results in both directions. A 1% move on a position leveraged 10 times becomes a 10% change relative to the margin used — whether that move is favourable or not.
What moves exchange rates?
- Interest-rate decisions and guidance from central banks
- Inflation, employment and growth data
- Political events and trade relationships
- Risk sentiment — in uncertain periods, some currencies are seen as safe havens
- Liquidity conditions around holidays and session changes
These drivers combine in ways that are hard to predict, which is why price movements can be sudden. Our article on understanding market volatility explores this in more detail.
How beginners usually approach forex
Most new traders start by learning on a demo or paper-trading environment, studying one or two major pairs and keeping position sizes very small. They also learn the basic tools of technical analysis and build a written plan before risking real money.
Some traders explore platforms such as PFW Management when comparing different trading environments. Whatever platform is considered, the questions stay the same: How are prices and costs shown? What risk controls are available? Is the information about the provider clear and verifiable?
Frequently overlooked points
- Weekend gaps: prices can open at a different level on Monday than they closed on Friday.
- Slippage: in fast markets an order may fill at a different price than requested.
- Overnight financing: holding leveraged positions overnight can add costs.
- Regulation: rules for retail forex differ significantly by country.
Educational disclaimer: This article is for educational purposes only and is not financial advice. Trading involves risk, including the possible loss of capital. This website is independent and not affiliated with PFW Management.
Written by the Financial Markets Research Team
An independent editorial group studying trading education, platform structure and risk awareness. We work from public information, industry data and comparison principles described in our research methodology and editorial policy. We do not provide financial advice.