How the forex market works: size, participants and quoting conventions
Build a verifiable picture of market size and structure first, then talk about trading.
A market with no central exchange
According to the Bank for International Settlements 2025 Triennial Central Bank Survey, global over-the-counter foreign exchange turnover averaged 9.6 trillion dollars per day in April 2025, up roughly 28% from 7.5 trillion dollars in April 2022. For context, that figure is far larger than the daily turnover of global equity markets.
Unlike equities, forex has no single central exchange. Trades are executed over the counter through interbank networks and broker platforms. Three consequences follow directly: there is no unified volume disclosure, quotes seen through different channels may differ slightly, and the quality of your fill depends on who your counterparty is.
Participants are layered
Understanding the layered structure is more fundamental than memorising any strategy. The first layer is central banks and large commercial banks, whose trading with each other forms the interbank market and is the origin of prices. The second layer is market makers and hedge funds, which provide liquidity and take risk. The third layer is corporate clients, participating for trade settlement and hedging. The fourth layer is retail brokers and individual traders.
In the BIS 2025 survey, Hong Kong, China retained its position as the world's fourth largest foreign exchange centre. That tells you forex activity is heavily concentrated in a small number of financial centres rather than spread evenly.
Who is a retail trader's counterparty?
On a retail platform, your counterparty is normally the broker or a liquidity provider it connects to, not an abstract "market". That determines three things: who supplies the quote, how the spread is formed, and whether your order fills at the expected price in extreme conditions. Lesson 04 covers order execution in detail and Lesson 05 covers the relationship between liquidity and spreads.
Currency pairs and quoting conventions
Prices are always quoted in pairs. EUR/USD tells you how many dollars one euro buys: the euro is the base currency and the dollar is the quote currency. The bid is the price at which the broker will buy the base currency; the ask is the price at which it will sell. The difference between them is the spread.
Remember the direction: you buy at the ask and sell at the bid. As a result, the moment you open a position your account shows a floating loss equal to the spread. That is part of the cost structure, not a mistake in judgement.
Why 24 hours a day, five days a week
The forex market follows the rotation of the earth, opening in sequence from Wellington, Sydney and Tokyo to London and New York, running continuously from Monday to Friday. It is closed at weekends, so Monday's open frequently produces a gap — a difference between the opening price and the previous week's close. When you hold positions overnight or over a weekend, that gap is a risk a stop cannot fully eliminate.
Two routes for Chinese investors
Domestically, individuals settle and purchase foreign exchange through banks under an annual facilitation quota. Under the State Administration of Foreign Exchange's Guidelines for Current Account Foreign Exchange Business (2020 edition), Huifa [2020] No. 14, the facilitation quota for individual settlement and for domestic individuals' purchases is the equivalent of 50,000 dollars per person per year, handled at a bank with a valid identity document within that quota.
The other route is margin trading through a licensed broker. The leverage available on that route is capped by the regulator of the relevant jurisdiction, and the caps differ markedly between them — Lesson 03 lists them one by one.
Lesson summary and self-check
- Forex is an over-the-counter market, measured by average daily turnover; the BIS figure for April 2025 is 9.6 trillion dollars.
- Participants are layered, and a retail trader's counterparty is the broker, not "the market".
- Prices are quoted as pairs; the bid-ask difference is the spread, and the floating loss at the moment of entry equals that cost.
- Domestic individuals have a facilitation quota of the equivalent of 50,000 dollars per year for both settlement and purchase.
Self-check: (1) If EUR/USD is quoted 1.1151 / 1.1153, at what price would you buy? (2) Why is there no unified turnover figure for the forex market?