Forex is a source for foreign exchange and exchange. Foreign exchange is the process of changing one currency into another for a variety of reasons, usually for trade, commerce or tourism. According to the 2019 triennial report from the Bank for International Settlements (a global bank of national central banks), daily forex trading volume reached $6.6 trillion in April 2019.
Forex basic rules
- The foreign exchange market (also known as forex or forex) is a global market for the exchange of national currencies.
- With trading, trading, and financing spread all over the world, the forex markets tend to be the largest and most liquid asset markets in the world.
- Currencies trade against each other as pairs of exchange rates. For example, EUR/USD is a currency pair for trading the euro against the US dollar.
- Forex markets exist as spot (cash) markets as well as derivative markets, offering forward contracts, forward contracts, options and currency swaps.
- Market participants use forex to hedge against international currency and interest rate risks, to speculate on geopolitical events, and to diversify portfolios, among other reasons.
Forex market definition.
The foreign exchange market is where currencies are traded. Currencies are important because they allow us to buy goods and services locally and across borders. International currencies must be exchanged to conduct foreign trade and business.
If you live in the United States and want to buy cheese from France, you or the company you buy the cheese from must pay the French for the cheese in euros (EUR). This means that the US importer will have to exchange the equivalent value of US dollars (in US dollars) into the Euro.
The same goes for travel. A French tourist in Egypt cannot pay in Euros to see the pyramids because it is not the locally accepted currency. The tourist must exchange the euro for the local currency, in this case the Egyptian pound, at the current exchange rate.
One of the unique aspects of this international market is the lack of a central foreign exchange market. Instead, currencies are traded electronically over the counter (OTC), which means that all transactions take place over computer networks between traders around the world, rather than on a single central exchange. The market is open 24 hours a day, five and a half days a week, and currencies are traded around the world in the major financial centers of Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo and Zurich – across almost every time zone. This means that when the trading day in the US ends, the forex market starts again in Tokyo and Hong Kong. As such, the forex market can be very active at any time, with price quotes constantly changing.