what is the forex or fx 
the foreign exchange market commonly referred to as the forex or fx is the global marketplace for the trading of one nation s currency for another the forex market is the largest most liquid market in the world with trillions of dollars changing hands every day it has no centralized location and no government authority oversees it rather the forex is an electronic network of banks brokerages institutional investors and individual traders mostly trading through brokerages or banks investopedia paige mclaughlinunderstanding the forexthe forex market determines the day to day value or the exchange rate of most of the world s currencies if a traveler exchanges dollars for euros at an exchange kiosk or a bank the number of euros will be based on the current forex rate if imported french cheese suddenly costs more at the grocery it may well mean that euros have increased in value against the u s dollar in forex trading forex traders seek to profit from the continual fluctuations of currency values for example a trader may anticipate that the british pound will strengthen in value the trader will exchange u s dollars for british pounds if the pound then strengthens the trader can do the transaction in reverse getting more dollars for the pounds in forex trading currencies are listed in pairs such as usd cad eur usd or usd jpy these represent the u s dollar usd versus the canadian dollar cad the euro eur versus the usd and the usd versus the japanese yen jpy there will also be a price associated with each pair such as 1 2569 if this is the usd cad pair it means that it costs 1 2569 cad to buy one usd if the price increases to 1 3336 then it now costs 1 3336 cad to buy one usd the usd has increased in value against the cad so it now costs more cad to buy one usd in the forex market currencies trade in lots called micro mini and standard lots a micro lot is 1 000 worth of a given currency a mini lot is 10 000 and a standard lot is 100 000 trades take place in set blocks of currency for example a trader can exchange seven micro lots 7 000 three mini lots 30 000 or 75 standard lots 7 500 000 trading volume in the forex market is generally very large trading in the foreign exchange markets averaged 7 5 trillion worth per day in april 2022 according to the bank for international settlements 1the largest trading centers are london new york singapore hong kong and tokyo trading in the foreign exchange marketthe forex market is open 24 hours a day five days a week around the globe historically foreign exchange market participation was for governments large companies and hedge funds in today s world trading currencies is as easy as a click of a mouse and accessibility is not an issue many investment companies allow individuals to open accounts and trade currencies through their platforms this is not like a trip to a foreign exchange kiosk the process is entirely electronic with no physical exchange of money from one hand to another rather traders are taking a position in a specific currency in the hope that there will be some upward movement and strength in the currency that they re buying or weakness if they re selling so that they can make a profit forex market vs other marketsthere are some fundamental differences between foreign exchange and other markets first of all there are fewer rules which means investors aren t held to strict standards or regulations like those in the stock futures and options markets there are no clearing houses and no central bodies that oversee the forex market second since trades don t take place on a traditional exchange there are fewer fees or commissions like those on other markets next there s no cutoff as to when you can and cannot trade because the market is open 24 hours a day you can trade at any time finally because it s such a liquid market you can get in and out whenever you want and you can buy as much currency as you can afford types of forex transactionsforex traders transact in one of three distinct marketplaces the spot the forward or the futures market to find the best entry and exit point for a trade they will use a variety of analysis techniques the spot market is the most straightforward of the forex markets the spot rate is the current exchange rate a transaction in the spot market is an agreement to trade one currency for another currency at the prevailing spot rate spot transactions for most currencies are finalized in two business days the major exception is the u s dollar versus the canadian dollar which settles on the next business day the price is established on the trade date but money is exchanged on the value date the u s dollar is the most actively traded currency 2 the most common pairs are the usd versus the euro japanese yen british pound and australian dollar 3trading pairs that do not include the dollar are referred to as crosses the most common crosses are the euro versus the pound and the euro versus the yen the spot market can be very volatile movement in the short term is dominated by technical trading which bases trading decisions on a currency s direction and speed of movement longer term changes in a currency s value are driven by fundamental factors such as a nation s interest rates and economic growth a forward trade is any trade that settles further in the future than a spot transaction the forward price is a combination of the spot rate plus or minus forward points that represent the interest rate differential between the two currencies most forward trades have a maturity of less than a year in the future but a longer term is possible as in the spot market the price is set on the transaction date but money is exchanged on the maturity date a forward contract is tailor made to the requirements of the counterparties they can be for any amount and settle on any date that is not a weekend or holiday in one of the countries unlike the rest of the foreign exchange market forex futures are traded on an established exchange primarily the chicago mercantile exchange forex futures are derivative contracts in which a buyer and a seller agree to a transaction at a set date and price this type of transaction is often used by companies that do much of their business abroad and therefore want to hedge against a severe hit from currency fluctuations it also is subject to speculative trading example of a forex tradea trader thinks that the european central bank ecb will be easing its monetary policy in the coming months as the eurozone s economy slows as a result the trader bets that the euro will fall against the u s dollar and sells short 100 000 at an exchange rate of 1 15 over the next several weeks the ecb signals that it may indeed ease its monetary policy that causes the exchange rate for the euro to fall to 1 10 versus the dollar this creates a profit for the trader of 5 000 by shorting 100 000 the trader took in 115 000 for the short sale when the euro fell and the trader covered the short it cost the trader only 110 000 to repurchase the currency the difference between the money received on the short sale and the buy to cover it is the profit had the euro strengthened versus the dollar it would have resulted in a loss pros and cons of forexthe forex was once the exclusive province of banks and other financial institutions the internet has blasted the doors wide open entry costs are low and the marketplace is open around the clock there are many choices of forex trading platforms including some that cater to beginners there also are online forex trading courses that teach the basics those financial institutions and the traders who work for them are still there alongside the neophytes working from home they have deep pockets sophisticated software that tracks currency price movements and teams of analysts to examine the economic factors that make currency rates move currency trading is a fast moving volatile arena quickly impacted by changes in global events it s a risky business and can be made riskier by the use of leverage to increase the size of bets it s an easy way to lose money fast anyone willing to jump into forex should get the necessary training in advance and start slowly with a minimal stake accessible to individual investors through online trading platforms open 24 hours a day world wide relatively light regulation or oversight dominated by professionals and institutions with deep pockets volatile prices subject to sudden swings based on news relatively steep learning curve for newcomers forex termsthere are a number of terms that are used by forex traders here are some of the basics going long buying a currency on the belief that its value will increase in a matter of hours then it can be sold for a profit going short selling a currency on the belief that its value will decrease it can then be repurchased at a lower price currency pair every forex transaction is an exchange of one currency for another a currency pair quote looks like this usd gbp 1 15 in this example the u s dollar is the base currency and the british pound is the quote currency a trader who wishes to buy british pounds will pay 1 15 for each the ask the price the trader will pay to buy a currency pair the bid the price the trader will pay to sell a currency pair the spread the difference between the buying price and the selling price just seven currency pairs represent the majority of trades on the forex they are eur usd euro u s dollar usd jpy u s dollar japanese yen gbp usd british pound u s dollar aud usd australian dollar u s dollar usd cad u s dollar canadian dollar usd chf u s dollar swiss franc nzd usd new zealand dollar u s dollar 