Foreign Exchange (Forex)

The foreign exchange market, often called the forex or FX market, is the largest financial market in the world, with trading averaging several trillion US dollars a day. It operates around the clock on weekdays, moving between financial centres such as London, New York, Singapore, Hong Kong and Tokyo.

Participants include banks, companies paying for imports or receiving export revenues, investment funds, central banks, governments, tourists and speculators. Most trading takes place electronically and over the counter, between banks and other institutions, rather than on a central exchange.

Currencies are quoted in pairs, such as EUR/USD, showing how many US dollars one euro buys. Trades can be for immediate delivery, called spot transactions, or for future dates, through forwards, futures, swaps and options.

For example, a European company buying machinery from the United States needs to exchange euros for dollars to pay the supplier. Exchange rates are influenced by interest rates, inflation, economic growth, trade flows, political events and market sentiment. Retail forex trading using leverage is high-risk, and many individual traders lose money.