How Does Forex Trading Work? From Your Order to the Market

You tap Buy on your phone and, a moment later, a position appears with a small red number beside it. Between those two moments your order has passed through several hands. So how does forex trading work behind that button, and who takes what along the way?

Quick answer: Forex trading works through a chain. You place an order on a broker’s platform; the broker either fills it from its own book or passes it to liquidity providers, the big banks that make prices on the interbank market. You usually hold a contract on the price, not real currency, and pay a spread to trade.

How does forex trading work? The short version

Forex trading is buying one currency while selling another, hoping the exchange rate moves your way. If that idea is new, start with our guide to what forex trading is. This article covers what happens after you press the button.

Strip it back and there are five steps. You choose a pair, a direction and a size on your broker’s trading platform and send the order. The platform passes it to the broker’s server, which checks you have enough free margin to open it. The broker then decides where the order goes: into its own book, or out to a bank or another liquidity provider. Someone fills it at the current price, and the confirmation travels back to your screen, usually in a fraction of a second.

The journey of a retail forex order: you click, the platform sends the order, the broker checks your margin and routes it, and the order is filled at the bid or ask. The confirmation and your live profit or loss come straight back.

Three things in that chain shape everything else in this article.

First, you never trade with the market directly. The firm legally on the other side of your trade is your broker, even when it passes your order on. That is why its regulation matters as much as its prices.

Second, there is no single price. Forex has no central exchange, so the price you see is your broker’s price, built from quotes it receives. Two brokers can show EUR/USD a fraction of a pip apart at the same instant, and both can be quoting fairly.

Third, what you hold is usually a contract, not currency. Buying EUR/USD on a retail platform does not put euros in a bank account with your name on it. It opens a position that pays or costs you the change in price.

Forex market structure: the layers of the market

The forex market is a network of banks, funds, companies and brokers trading with each other over the counter (OTC): directly, by electronic platform, chat and phone, rather than through one exchange with one order book. That is why it can run 24 hours a day, five days a week, from Sunday evening to Friday evening New York time, passing between financial centres as the working day moves round the world. Our guide to forex market hours covers the sessions.

A narrow aisle between two long rows of black server cabinets in a data centre, lit from above. — There is no central forex exchange. Prices pass between banks, platforms and brokers over electronic networks run from rooms like this.

It is also enormous. The Bank for International Settlements, often called the bank for central banks, surveys the market every three years. Its April 2025 survey put average turnover at about $9.6 trillion a day. Very little of that comes from individuals. The easiest way to picture who does trade it is as a pyramid with four layers.

Forex market structure as a pyramid. A handful of central banks sit at the top, dealing banks make prices on the interbank market, institutions and companies trade with them, and retail traders at the wide base reach prices through a broker.

Central banks sit at the top. There are few of them and they do not make prices day to day, but every central bank sets its country’s interest rate, manages large reserves and, now and then, intervenes directly to steady its currency. Their decisions move every layer below.

Dealing banks form the interbank market: the largest global banks quoting buy and sell prices to each other and to everyone beneath them. When people say where EUR/USD is trading, they mean the prices circulating in this layer. These banks, together with some specialist non-bank market-making firms, are the liquidity providers that retail brokers connect to.

Institutions and companies come next: asset managers, hedge funds, pension funds, smaller banks, and businesses paying or earning abroad. They trade with the dealing banks, often in very large sizes.

Retail brokers and traders form the wide base: millions of individual accounts, each trading small amounts. Smaller brokers often cannot deal with the top banks directly, so they connect through a prime broker or a prime-of-prime firm.

Prices are made in the upper layers and passed down, and each step can add a small mark-up. That is how a layered market pays its intermediaries, and it is why the Academy lesson on how brokers work starts with who stands between you and the banks.

The forex broker role: where your order actually goes

Once your order reaches the broker, it can go one of two ways. Tap between the two models below to see the difference.

Where a retail forex order goes after you click. An STP or ECN broker passes it on to liquidity providers; a market maker fills it from its own book and may hedge later.

In the industry these two routes are often called the A-book and the B-book.

In the A-book, the broker passes your trade on. When you buy 20,000 euros against the dollar, it places a matching order with a liquidity provider, so the market risk sits with the bank rather than the broker. Brokers that work this way usually describe themselves as STP (straight-through processing) or ECN (electronic communication network, where orders meet quotes from several providers). They earn from a small mark-up on the spread or a commission per lot, so they are paid whether you win or lose.

In the B-book, the broker keeps your trade. It takes the other side itself, acting as a market maker, and holds the risk on its own books. If you make money on that trade, the broker loses the same amount; if you lose, the broker keeps it.

A-book versus B-book. In the A-book the broker passes your order to a liquidity provider and earns a mark-up or commission. In the B-book it takes the other side itself, so your net losses are its revenue and your net gains are its cost.

B-booking is legal and common, and it is not the same as cheating. A large broker sees thousands of clients buying and selling at once, and many of those orders cancel each other out, so it only needs to hedge the net exposure left over. Market makers can also offer steady spreads and fill small orders instantly.

The conflict of interest is real, though. A firm that profits when clients lose has a reason to prefer that they lose. Regulators deal with this by requiring firms to manage conflicts, to fill orders fairly at the prices they quote, and, in the UK and EU, to publish the share of retail accounts that lose money. Most large brokers run a hybrid: they keep some flow in-house, hedge large or consistently profitable accounts, and pass the rest on.

For you, the useful questions are simple. Is the firm regulated by a serious authority? Does its order execution policy say how it handles your trades? Are its costs clear? Our comparison of ECN vs market maker brokers goes through the trade-offs model by model, and the lesson on broker regulation explains what a licence actually protects.

How forex prices are formed: bid, ask and spread

Because there is no central exchange, there is no single official price for EUR/USD. Each liquidity provider streams its own two-way quote: a price at which it will buy and a price at which it will sell. Your broker’s pricing engine collects these streams, often from several banks at once, and picks the best of them: the highest price anyone will pay and the lowest price anyone will sell at. Imagine three providers quoting at the same instant (illustrative prices):

Provider	Will buy at (bid)	Will sell at (ask)
Bank A	1.08498	1.08512
Bank B	1.08502	1.08515
Bank C	1.08495	1.08508
Best combined	1.08502 (Bank B)	1.08508 (Bank C)

The best combined price has a spread of only 0.6 pips, tighter than any single bank’s. A broker offering a raw-spread account may show you something close to that and charge a commission. A broker on a standard account typically adds a small mark-up, say 0.2 pips each side, and shows you 1.08500 / 1.08510: a 1.0-pip spread. The fifth decimal is a pipette, a tenth of a pip. Whatever the route, the quote that reaches you always has two sides. Tap through its parts below.

EUR is the base currency: the one you are buying or selling. The price is always for one unit of it.

A retail EUR/USD quote after the broker has combined its providers' prices: the bid is what you get when you sell, the ask is what you pay when you buy, and the 1-pip gap between them is the spread.

The bid is what you receive when you sell; the ask is what you pay when you buy. The gap between them is the spread. Buying at the ask and immediately selling at the bid would lose exactly the spread, which is why every new trade opens slightly in the red.

Spreads move. When many providers are quoting actively, during the London and New York sessions on major pairs, the best bid and best ask sit very close together. When providers step back, at the daily rollover, at the Sunday open, or in the seconds around a major data release, the best quotes thin out and the spread widens. There are fewer good prices to choose from. The full mechanics are in our guide to the bid, ask and spread and in the lesson on bid, ask and spread.

What you actually own: CFD forex and rolling spot

When you change money at a bank, you receive currency. Retail forex trading works differently. In most countries outside the US, what you open is a contract for difference (CFD): an agreement that your broker will pay you, or you will pay it, the difference between the price when you open and the price when you close, multiplied by your position size.

In the US, CFDs are not available to retail clients. Retail forex there is offered as rolling spot contracts by firms registered with the CFTC and NFA. A rolling spot contract is a spot currency trade that is pushed forward every night so that it never settles. For you, the effect is almost identical: you gain or lose the price change, and no currency is delivered.

What you own: buying currency at a bank delivers real money that you pay for in full. A forex CFD or rolling spot position is a contract with your broker that pays only the price change, needs only margin, and is charged swap each night.

This has three consequences worth knowing.

You only put up margin. Because nothing is delivered, you do not pay the full value of the position. You lock a deposit and control the rest through leverage.

You pay, or earn, to hold overnight. A delivered currency trade settles and is finished. A rolling position keeps being pushed forward, and each push carries an interest charge or credit called swap. We look at that in the section on rollover below.

Your contract is with the broker. If the broker fails, what happens to your open positions and your money depends on its regulation, on whether client funds were kept separate, and on any compensation scheme. The choice of broker is therefore part of every trade you place, which is why our guide to forex broker regulation is worth reading before you deposit.

Margin, leverage and where your money sits

Leverage is the reason retail forex is possible with small accounts. A standard lot of EUR/USD is 100,000 euros, worth about $108,500 at 1.0850. With 1:30 leverage, the limit on major pairs for retail clients in the UK, the EU and Australia, your broker locks only one-thirtieth of that, about $3,617, as margin. In the US the retail limit on major pairs is 1:50.

Margin is not a fee. It is your own money, set aside while the trade is open and released when it closes. What it does is let your profit and loss run on the full $108,500, so each pip is worth $10 on a standard lot whether you put up $3,617 or the whole amount. Leverage changes how much you can open; position size decides how much you can lose. Our guide to leverage in forex and the lesson on leverage and margin work through the numbers.

Inside the chain, the broker watches your equity (your balance plus or minus open profit and loss) against the margin your trades need. If losses push equity too close to that figure, you get a margin call, and at a set level the broker closes positions automatically. In the UK and EU, brokers must start closing a retail client’s positions once equity falls to half the margin required, and negative balance protection means you cannot lose more than the money in your account. Our guide to what margin is in forex covers margin level and close-outs in detail.

Your deposit does not travel with your order. It stays with the broker, and the important question is where. Toggle between the two arrangements below.

Where your deposit sits in the chain. A regulated broker holds it in a segregated client account, separate from its own money; if the broker fails, segregation is what keeps your balance out of the company's debts.

Regulated brokers in serious jurisdictions must keep client money in segregated accounts, separate from the company’s own funds. That protects you if the firm fails, and it is one more reason the licence comes before the spread or the platform.

How the broker earns: spread, commission, swap and the B-book

Every link in the chain gets paid. For your broker there are four possible sources of income, and which ones apply depends on its model.

The spread. On a standard account the broker’s mark-up is built into the bid and ask. You pay it on every trade, win or lose.
Commission. Raw-spread accounts pass on prices close to the providers’ quotes and charge a fixed commission per lot instead.
Swap. Positions open at the daily rollover are charged or credited swap: roughly the interest-rate difference between the two currencies, plus a broker mark-up.
Client losses, in the B-book. When a broker keeps a trade in-house, the client’s net loss is the broker’s revenue and the client’s net gain is its cost.

The first three are visible on the broker’s pricing page and in your trade history. The fourth is not a fee; it is the result of who takes the other side. A well-run market maker earns mainly from the spread on a large, balanced flow of orders, and regulated ones are supervised on how they price and fill.

Of the visible costs, the spread adds up fastest, because you pay it on every trade. The calculator below multiplies it by how often you trade.

Trades per weekSpread (pips)Trade size

Per trade

Per week

Per year (48 weeks)

Spread cost = spread in pips × pip value for your trade size. It is paid on every trade, whether it wins or loses.

At the default settings, ten mini-lot trades a week at a 1-pip spread cost $1 a trade, $10 a week and $480 over a 48-week year. Our guide to forex trading costs adds every cost up per month, and the lesson on the real cost of trading shows how they eat into a strategy’s results.

Rollover, settlement and what happens when you close

Two more stages finish the journey: what happens overnight, and what happens when you close.

Settlement. In the interbank market, a spot currency trade settles two business days after it is agreed (one business day for USD/CAD). On that date real money changes hands. Retail positions avoid settlement by being rolled forward.

Rollover. The forex day ends at 5 p.m. New York time. Any position still open then is rolled to the next value date, and the interest difference between the two currencies is charged or credited as swap. Because spot trades settle two days later, the position rolled on Wednesday night jumps over the weekend, so for most pairs Wednesday’s swap counts three nights.

The main concourse of Grand Central Terminal in New York, with tall arched windows and blurred commuters crossing the marble floor. — Grand Central Terminal, New York. The forex day is set by the New York clock, and positions still open at 5 p.m. there are rolled to the next day.

Rollover on a buy held from Monday to Thursday. Each dashed line is the daily rollover at 5 p.m. New York time. The position is charged swap at three rollovers, and the Wednesday one counts three nights, so it pays five nights in total.

Closing. Closing a position is the opposite trade. Close a buy and you sell the same amount at the bid; close a sell and you buy it back at the ask. The broker nets the two, books the profit or loss to your balance, converts it into your account currency if needed, and releases the margin. Whether the broker passed your trade on or kept it, the closing order follows the same route as the opening one. A stop loss or take-profit closes the position the same way, automatically, when price reaches your level.

Here is the whole chain in one trade.

Example: one EUR/USD trade, from click to close

You have a $5,000 account at 1:30 leverage. EUR/USD is quoted 1.0850 / 1.0851, a 1-pip spread. You want to buy, with a stop 25 pips below your entry and no more than 1% of the account ($50) at risk.
$50 ÷ 25 pips = $2 a pip, so you buy 0.2 lots (20,000 euros) at the ask, 1.0851. The platform sends the order, the broker checks your margin and fills it, and your stop goes in at 1.0826.
Position value: 20,000 × 1.0851 = $21,702. Margin locked at 1:30: $21,702 ÷ 30 = $723.40, leaving about $4,275 of free margin.
The trade shows −$2 straight away: if you closed now you would sell at the bid, 1.0850, one pip lower. That $2 is the spread.
You hold it past one rollover (not a Wednesday). The swap is −$6 per lot per night, so 0.2 lots costs $1.20.
The next afternoon EUR/USD is quoted 1.0893 / 1.0894 and you close, selling at the bid, 1.0893. That is 1.0893 − 1.0851 = 42 pips × $2 = $84. The mid-price rose 43 pips; the missing pip is the spread you paid on entry.
Net result: $84 − $1.20 = $82.80. The margin is released and your balance is $5,082.80, about 1.7% higher. Had price fallen to your stop instead, the trade would have closed at 1.0826 for a loss of 25 × $2 = $50, plus any swap: the 1% you planned for.

Notice where each dollar went. The spread went to the broker, or partly to the bank, on the way in. The swap went to the broker at rollover. The $84 came from the broker, which either paid it out of its own book or collected it from the liquidity provider that took the other side.

Common mistakes when picturing how forex works

Thinking you trade directly with the market

You do not. Your contract is with your broker, and every price and fill comes through it. Check the firm’s licence on the regulator’s own register before anything else.

Assuming the price on your screen is the only price

There is no official forex price. Your broker shows its own bid and ask, built from its providers’ quotes plus any mark-up. Small differences between platforms are normal; large or frequent ones on major pairs are worth asking about.

Forgetting that you hold a contract, not currency

A CFD or rolling spot position is a promise between you and the broker. Your money depends on the broker’s regulation, segregation and any compensation scheme behind it.

Treating margin as the cost of a trade

Margin is a deposit, returned when you close. The real costs are the spread, any commission and swap. Your risk is set by position size and the distance to your stop, not by the margin locked.

Ignoring the overnight leg

Hold positions for weeks and swap, including the triple Wednesday charge, can cost more than the spread you paid to get in.

Frequently asked questions

How does forex trading work for beginners?

You open an account with a regulated broker, deposit money and place orders on its platform. The broker fills each order itself or passes it to banks that make prices. You profit or lose on the change in the exchange rate, pay a spread on every trade, and use margin and leverage to control larger positions.

Who is on the other side of my forex trade?

Legally, your broker. In the A-book model it hedges your trade with a liquidity provider, usually a large bank, so the bank carries the market risk. In the B-book model the broker keeps the trade on its own books, so your net gain is its loss and your net loss is its gain. Many brokers use a mix of both.

Do you actually own currency when you trade forex?

Usually not. Retail forex is traded as contracts for difference in most countries, or as rolling spot contracts in the US. You gain or lose the price change and pay or earn swap overnight, but no euros or dollars are delivered to you. That is why margin, rather than the full value, is enough to open a trade.

How do forex brokers make money?

From the spread built into their bid and ask prices, from a commission per lot on raw-spread accounts, and from the mark-up on overnight swap. Brokers that keep client trades in-house, called market makers or B-book brokers, also earn when clients lose overall, and pay out when they win.

What is the interbank market in forex?

It is the top layer of the forex market, where the largest dealing banks quote prices to each other and to institutions. There is no central exchange: trading happens over the counter on electronic platforms. Retail brokers take their prices from banks and other liquidity providers in this layer.