What is the Forex market — definition, scale, OTC mechanics

Forex — in full Foreign Exchange — is the global currency market on which banks, corporations, funds, and retail clients buy and sell euros for dollars, yen for pounds, francs for zlotys. According to the latest Bank for International Settlements triennial survey, daily turnover reaches roughly seven and a half trillion dollars — twenty-five times more than every stock exchange combined generates in the same window. This article explains how the market came to be, who trades on it, why it runs 24 hours, five days a week, and what a retail client opening an account in 2026 actually gets.

A one-sentence definition and a scale that cannot be compared with equities

Forex is the market on which one currency is exchanged for another at a rate set by supply and demand. No physical headquarters, no central transaction registry — trading runs simultaneously in dozens of financial centers around the globe. Every transaction is an agreement between two sides: one delivers currency A, the other delivers currency B, and the ratio of their values is the exchange rate.

More money moves through the currency market each day than Germany produces in an entire year. It is the result of a survey conducted every three years by BIS with the participation of central banks from fifty-two countries. The scale matters fundamentally for a trader, because it shapes liquidity, transaction costs, and the market's resilience against manipulation.

A short history — from Bretton Woods to today's 24/5 market

The modern currency market in its current form began functioning in August 1971, when President Richard Nixon ended the convertibility of the dollar into gold and with it the Bretton Woods system. From the July 1944 conference the currencies of major economies were pegged to the dollar, itself convertible into gold at thirty-five dollars per ounce — the system crumbled in the 1960s under American fiscal deficits tied to the Vietnam War. After 1971, exchange rates began to be set by markets. The 1980s brought the first electronic systems Reuters Dealing and EBS, the 1990s internet platforms, and the early XXI century opened the market to retail clients through MetaTrader. Polish retail clients only appeared meaningfully after 2004, when the KNF began licensing brokerage houses offering CFD trading on currency pairs.

The OTC mechanics — how you trade something that does not sit in one place

Forex is a textbook over-the-counter market (OTC). Transactions are settled directly between two parties through interbank platforms — Reuters Dealing, EBS NEX Markets, Bloomberg FX. Every dealer bank quotes its own bid and ask prices; the actual market price is the composite of all participants' quotes. A practical consequence: the EUR/USD rate in any second can differ by one to five tenths of a pip between two banks — normal, not an error. A retail client receives a quote from their broker, who sources liquidity from tier-1 banks or aggregators; that is why the spread on the EUR/USD pair can run at one tenth of a pip at one ECN broker and five tenths at another. A second feature of OTC is the absence of a single registry — BIS estimates turnover from surveys conducted every three years.

The participant hierarchy — from the interbank market down to the retail client

The forex market has a steep hierarchy. At the top sit the tier-1 banks: Deutsche Bank, JP Morgan, Citi, UBS, Goldman Sachs, Bank of America, HSBC, Barclays. Together they generate roughly sixty percent of global turnover and have direct access to the interbank market. Transaction sizes start at one million dollars and reach hundreds of millions on individual orders. Below sit regional banks, hedge funds, and prime brokers. The lowest layer comprises retail-facing brokers — XTB, IC Markets, Saxo, Pepperstone, Capital.com — aggregating thousands of smaller transactions; and it is worth knowing how a currency-exchange office differs from a forex broker, since these are two fundamentally different modes of accessing the currency market. Retail clients generate roughly five percent of global turnover but are the fastest-growing segment. The practical consequence: a retail client does not compete against banks — banks trade at a scale at which a ten-thousand-euro account is invisible. They compete against other retail clients, against high-frequency algorithms, and most of all against their own emotional decisions.

Currency pairs and dollar dominance — majors, minors, exotics

Currencies are always traded in pairs: you buy one currency while simultaneously selling another. The notation places the base currency before the quote currency: EUR/USD tells you how many dollars one euro buys — which is why understanding base and quote currency is the first step to reading any price correctly; a rate of 1.0850 means a euro costs one dollar and eighty-five cents.

Pairs fall into three categories — and what sets major, minor and exotic pairs apart is one of the first things worth understanding before choosing an instrument. The first category comprises the seven majors — pairs in which the US dollar always sits on one side: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD, NZD/USD. The second is the less-popular minors or crosses — pairs of major currencies without the dollar (EUR/GBP, EUR/JPY, GBP/JPY). The third is the exotics — a major paired with an emerging-market currency (USD/TRY, USD/ZAR, EUR/PLN, USD/MXN). The US dollar participates in close to eighty-eight percent of all forex transactions: after Bretton Woods it became the world's main reserve currency, and strategic commodities (oil, metals, grains) are quoted in dollars. The IMF's COFER report shows around fifty-eight percent of global central-bank reserves still held in dollars, twenty percent in euros and around five percent in yen.

The three world sessions — why the market runs 24 hours, five days a week

The market opens on Monday at eight in the morning Sydney time (ten in the evening Warsaw time on Sunday) and closes on Friday at five in the afternoon New York time (eleven in the evening Warsaw). Each trading session has its own character: Asian (Sydney, Tokyo) is quiet — yen pairs and the Australian dollar lead. The London session brings the highest liquidity of the day — London alone generates around thirty-eight percent of global turnover according to BIS. The New York session overlaps with London between two and five in the afternoon Warsaw time — the window in which US macro releases (CPI, NFP, FOMC) can produce moves of fifty to a hundred pips on EUR/USD within minutes.

Saturday and Sunday are off — banks close their interbank desks, and the first Monday open often reveals a price gap when material news arrived. The classic example was the gap after the British Brexit referendum in June 2016, when GBP/USD opened more than ten percent below where it had closed on Friday.

"The stability of the financial system depends not on individual institutions but on the architecture of the market as a whole — and above all on its liquidity in moments of stress. The currency market is the purest example: in quiet periods it absorbs any transaction without a trace; in a panic it can freeze for minutes and cost billions." — Mervyn King, Bank of England Governor 2003–2013, The End of Alchemy, W. W. Norton, 2016.

How a retail client really trades — CFDs and ESMA protection

A retail client in the EU almost always trades not interbank spot but CFD contracts issued by the broker. A CFD (Contract for Difference) is a settlement contract: no physical delivery of currency, and the financial result equals the price move multiplied by the position notional. The CFD price tracks interbank quotes with millisecond latency, so the price-movement experience is identical to spot forex. EU retail clients are protected by the ESMA decision of 2018, which introduced restrictions still applying to Polish clients through KNF supervision: a leverage cap of 1:30 on major pairs, 1:20 on non-major pairs and gold, 1:10 on other commodities, 1:2 on cryptocurrencies, mandatory negative-balance protection, and the obligation to publish the percentage of loss-making retail accounts. Brokers disclose that seventy-four to eighty-nine percent of retail clients close the year with a loss — honest, and it defines the statistical starting point for every new account.

First steps — what to do tomorrow if you are just starting

1. Check the mandatory risk warning at the broker. Visit the homepage of an EU-regulated broker, find the disclosure in the footer about the percentage of loss-making retail accounts, and write that number down — it is the statistical baseline for clients exactly like you.
2. Open a demo account and check the macro calendar. Pick two licensed brokers and spend at least six weeks on the demo before the first deposit. Open ForexFactory, filter releases for high impact, and count how many fall between two and five in the afternoon Warsaw time — those are the highest-volatility hours and the highest slippage risk.
3. Start a trading journal on your very first demo trade. A Google Sheets file with six columns is enough: date, pair, direction, entry rationale, stop loss in pips, outcome. After twenty trades you will see the pattern of your own mistakes — the most valuable piece of information at the start.
4. Learn one pair before touching a second. The best choice for a beginner is EUR/USD — the highest liquidity, the tightest spread, the clearest trends. Give yourself three months on that pair alone; starting on exotics is the fastest route to exhausting your capital.