How Currency Markets Work
Participants, trading sessions and what actually moves exchange rates.
This guide explains how a market or product works, including its material risks. It is educational only and is not investment advice. Leverage magnifies losses as well as gains, education does not remove financial risk, and trading is not a reliable source of income.
The foreign exchange market is where currencies are exchanged. It is a decentralised market: most transactions happen between banks, institutions and brokers rather than on a single exchange.
Who takes part
Participants include central banks, commercial banks, companies paying for goods abroad, asset managers and retail traders. Retail traders account for a small share of total activity.
What moves exchange rates
Interest-rate expectations, inflation, economic growth, trade flows and risk sentiment all influence currency prices. Prices can move sharply around scheduled announcements.
Risks
Currency prices are difficult to predict. Retail currency trading is usually done with leverage, which magnifies losses as well as gains, and a majority of retail accounts trading leveraged products lose money.
Sources and data
- Bank for International Settlements, Triennial Central Bank Survey
Corrections and updates
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