Module 1A: Forex Foundations · Lesson 1 of 4 · Back to course
The foreign exchange market – “forex” or “FX” – is where one currency is swapped for another. Every time a UK company pays a supplier in dollars, a pension fund buys Japanese shares, or you change pounds into euros before a holiday, somebody is trading currencies. Traders try to profit from the changes in those exchange rates.
Before you place a single forex trade, it helps to understand what this market actually is, who else is in it, and where you sit as a retail trader. The short answer: it’s enormous, it’s mostly made up of professionals, and you’re a very small fish in it.
A market with no single exchange
Shares in a FTSE 100 company trade on the London Stock Exchange. There’s one central venue and one official price at any moment. Forex isn’t like that. It’s an over-the-counter (OTC) market: a network of banks, dealers and electronic trading venues around the world that trade with each other directly.
That has three practical effects for you:
- There’s no single “official” price. The EUR/USD price on your platform comes from your broker and its sources. Another broker’s price may be very slightly different at the same moment.
- It runs around the clock on weekdays. Trading moves from Sydney and Tokyo to London and then New York. For UK traders, the week usually starts around 22:00 on Sunday and ends around 22:00 on Friday (UK time), although exact times vary by broker and around the clock changes. We cover sessions in Trading sessions in UK time.
- Your broker matters. Because there’s no central exchange, the firm you trade with sets the prices you see, the spread you pay and how your orders are filled. That’s why checking the firm is FCA authorised is so important (see Lesson 2.2).
How big is it?
Very. The Bank for International Settlements (BIS) surveys the market every three years. In April 2025, global forex trading averaged about $9.6 trillion a day, up 28% from 2022 (BIS, September 2025). The US dollar was on one side of 89% of all trades.
London is the world’s biggest forex centre. The Bank of England’s part of the same survey found UK-based trading averaged about $4.7 trillion a day, around 38% of the global total (Bank of England, 2025). That’s one reason the London session is usually the busiest part of the forex day.
A huge market sounds reassuring, but size doesn’t make it easier to profit from. It means the prices you trade against are set by some of the best-resourced institutions in the world.
Who trades forex?
| Participant | Why they trade | What it means for you |
|---|---|---|
| Central banks (e.g. the Bank of England, the Fed) | Set interest rates, manage reserves, occasionally intervene | Their decisions can move currencies sharply – see Central banks and interest rates |
| Large banks and dealers | Quote prices to clients and to each other, and manage their own risk | They form the core of the market and see far more order flow than you |
| Asset managers, pension funds and hedge funds | Buy foreign assets, hedge currency risk, and speculate | Big flows around month-end and quarter-end can push prices for reasons unrelated to any chart |
| Businesses | Pay for imports, receive export income, hedge future payments | Much of the market’s volume has nothing to do with speculation |
| Retail traders (you) | Speculate on price moves, usually via spread bets or CFDs | A small share of the market, trading through a broker, usually with leverage |
The key point: most forex volume isn’t people trying to “beat the market” on a 15-minute chart. A UK car importer buying dollars to pay a US supplier isn’t trying to time the top. That flow can still push prices around, though, which is one reason short-term moves can look random.
Where your broker fits in
As a UK retail trader, you don’t trade directly with banks. You trade with a broker, usually through a spread bet or a CFD. You never take delivery of any currency. You’re simply agreeing to settle the difference in price.
Brokers handle your trades in broadly two ways (many use a mix of both):
- Taking the other side themselves (often called “market making” or “dealing desk”). The broker is your counterparty. It may hedge some of its overall exposure in the wider market.
- Passing your order on to banks or other liquidity providers (often called “agency”, “STP” or “direct market access”). The broker usually earns a commission or a mark-up on the spread.
Neither model is automatically good or bad. UK firms must manage conflicts of interest and give clients good execution under FCA rules. What matters to you is the total cost of trading and how reliably orders are filled. We explain this in What a broker does and how brokers make money.
Example (illustrative numbers)
All figures are made up for teaching purposes. They aren’t real prices or a trade idea.
A UK furniture company must pay a US supplier $500,000 in three months. Today GBP/USD is 1.2500, so that costs £400,000. If the pound weakens to 1.2000, the same bill would cost about £416,667 – nearly £17,000 more. So the company’s bank arranges a forward contract to lock in today’s rate. That’s hedging, not speculation, and it’s the kind of flow that happens every day.
Meanwhile, a retail trader in Bristol opens a spread bet to buy GBP/USD at 1.2500, at £2 per point (one point here is 0.0001). Their stop is at 1.2470, 30 points away, so they’re risking £60.
- If GBP/USD rises to 1.2560: +60 points × £2 = +£120.
- If it falls to their stop: −30 points × £2 = −£60, plus any slippage.
Both are “trading forex”, but for completely different reasons. The trader in Bristol is betting on the direction; the company is protecting a business cost.
The prop firm angle
Most forex prop firm challenges are built around currency pairs, and the clock matters. Daily loss limits usually reset at a set time in the firm’s own time zone, which may not be midnight UK time. Check when “the trading day” starts and ends for any challenge before you trade it, and remember that the Sunday-night open can bring gaps and wide spreads.
Key takeaways
- Forex is an over-the-counter market with no single exchange, running 24 hours a day on weekdays.
- It’s the biggest financial market in the world, and London is its largest centre.
- Most volume comes from banks, funds and businesses, not retail traders.
- As a UK retail trader you trade through a broker, usually with spread bets or CFDs, and never own the currency.
Quick quiz
- What does “over-the-counter” mean? (Trades happen directly between parties through a network, not on one central exchange.)
- Which country is the world’s largest forex trading centre? (The United Kingdom, with around 38% of global turnover in April 2025.)
- Name two reasons a business might trade currencies. (Paying for imports, receiving export income, or hedging future payments.)
- Do you own euros when you buy EUR/USD with a spread bet? (No. You’re betting on the price change and settle the difference.)
- A spread bet at £3 per point moves 25 points against you. What’s the loss? (£75.)
Key terms
Forex · Broker · Market maker · Liquidity · Hedging · Spread betting · CFD · Trading session
Try this
Open a free chart of GBP/USD on a 1-hour timeframe and look at one full week. Mark three things: the Sunday-night open, the start of the London session (08:00 UK time) and the start of the US session (around 13:30–14:30 UK time, depending on the time of year). Note when the candles get bigger. You’ll usually see the market “wake up” when London opens.
FAQ
Is forex trading legal in the UK? Yes. Trading forex through spread bets or CFDs with an FCA-authorised firm is legal. That doesn’t make it low risk – most retail accounts lose money.
Can I trade forex at the weekend? The main market closes at the weekend. Some firms offer limited weekend prices on certain markets, but spreads can be very wide. Positions held over the weekend can also gap when the market reopens.
Do I need a lot of money to trade forex? No, and that’s part of the danger: leverage lets small accounts control large positions. See How much time and money do you really need?
Disclaimer: This page is general education, not financial or investment advice or a personal recommendation, and it doesn’t take your circumstances into account. Examples are hypothetical, for illustration only, and not an invitation to buy or sell. Learning a strategy doesn’t guarantee profits. Past performance is not a reliable guide to future results. Futures, spread bets and CFDs are complex and carry a high risk of losing money quickly because of leverage, and most retail traders lose money. With a real futures account, losses can exceed your deposit. Only trade with money you can afford to lose, and speak to an independent FCA-authorised adviser if you’re unsure. Read our full risk warning.