How Does the Forex Market Work?
Unlike the stock market, forex has no single physical exchange or central location. It's what's called an over-the-counter (OTC) market — trading happens directly between parties, electronically, across a global network of banks, brokers, and financial institutions.
A market that never technically closes
Because currencies are traded across different time zones worldwide, the forex market runs continuously from Monday morning in Asia through Friday evening in New York — effectively 24 hours a day, 5 days a week. As one major trading session winds down, another is just opening, which is why forex has the concept of overlapping "sessions" rather than a single open/close time (more on this in the Forex Market Sessions article).
Layers of the market
Not everyone trades on equal footing. The forex market is often described in tiers:
- Interbank market — the top tier, where the largest banks trade directly with each other at the tightest prices
- Institutional and corporate participants — hedge funds, large corporations, and investment firms
- Retail brokers — the layer individual traders access, which sources prices from the tiers above
As a retail trader, you're not trading directly with a bank — you're trading through a broker, who quotes you a price based on the wider market.
What actually moves prices?
Exchange rates move based on supply and demand for each currency, which is influenced by things like:
- Interest rate decisions from central banks
- Economic data (inflation, employment, GDP)
- Political stability and geopolitical events
- Overall market sentiment and risk appetite
You can track exactly these kinds of events on DeskTerminal's Economic Calendar, which shows upcoming data releases that commonly move currency prices.
Liquidity and spreads
Because so much money moves through forex, major pairs like EUR/USD are extremely liquid — meaning it's easy to buy or sell without significantly moving the price yourself. This liquidity generally keeps the cost of trading (the "spread," or the small gap between buy and sell price) relatively low on major pairs compared to smaller, less-traded pairs.
This is educational content only, not financial advice.
How This Plays Out in a Real Trading Day
Here's what the layered market structure actually looks like in practice. Say you place a buy order for GBP/USD through your broker. Your broker doesn't personally hold a matching seller waiting — instead, it routes your order to its own liquidity providers (often larger banks), who fill it based on prices set even further up the chain, at the interbank level.
This is why the price you see can differ slightly between brokers — each one sources liquidity from a different set of providers, resulting in tiny variations in quoted spreads, even for the exact same currency pair at the exact same moment.
It's also why liquidity (and therefore spread) changes throughout the day. During the London/New York overlap, dozens of major banks are actively quoting prices, keeping spreads tight. During the quiet hours between the New York close and Sydney open, far fewer participants are active — spreads on the same pair can widen noticeably, sometimes 2-3x, even though nothing "fundamental" has changed.
Frequently Asked Questions
Why doesn't forex have a central exchange like the stock market?
Forex is an over-the-counter (OTC) market — trading happens directly between banks, brokers, and institutions electronically, rather than through one central location like the NYSE.
Is forex really open 24 hours a day?
Yes, Monday through Friday — as one major session closes, another opens somewhere else in the world, creating continuous trading across time zones.
Who actually sets forex prices?
Prices emerge from supply and demand across the interbank market — the largest banks trade with each other at the tightest prices, and this cascades down to what retail brokers quote you.
What causes sudden price movements in forex?
Major moves usually come from economic data releases, central bank interest rate decisions, geopolitical events, or shifts in overall market risk sentiment.