How the forex market works

The foreign exchange (forex) market is where currencies are bought and sold. It is the largest financial market in the world — trillions of US dollars change hands every day — and it is open 24 hours a day, five days a week.

Why currencies move

A currency rises or falls against another because of supply and demand. The biggest drivers are:

• Interest rates set by central banks (the US Federal Reserve, the European Central Bank, the Bank of England…).
• Economic data such as inflation, jobs and growth figures.
• Risk mood: in uncertain times money tends to move to "safe" currencies like the US dollar, Swiss franc or Japanese yen.

What you actually do as a trader

You never hold the physical currency. You speculate on the price: you buy if you expect a pair to rise and sell if you expect it to fall. Your profit or loss is the difference between your entry price and your exit price.

Trading involves real risk. Learn on a demo account first, and only trade money you can afford to lose.