Forex

Forex, or foreign exchange, is the global market for exchanging currencies. It is a decentralized, over-the-counter market where participants trade currencies against each other in pairs. The market operates continuously across time zones, enabling conversion for commerce, investment, hedging, and speculation.

Turnover in the forex market is among the largest of any financial market. Daily trading volume runs into trillions of dollars. Major trading centers include London, New York, Tokyo, Singapore, and Sydney. The most-traded currency pairs, such as EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, and USD/CAD, account for a large share of activity.

Key participants include banks, hedge funds, corporations, central banks, and retail traders. Banks provide liquidity and execute client orders. Corporations hedge exposure to exchange-rate risk. Central banks may intervene to influence exchange rates. Retail traders access the market via online brokers and platforms.

Trading in forex is conducted in different instruments. The spot market involves immediate delivery of currencies, while forwards, futures, and swaps are used to manage timing and risk. Options provide a right, but not the obligation, to exchange at a set rate. Prices are quoted in currency pairs with a base and quote currency. A pip is a common unit of price movement in most pairs.

Market participants rely on economic data, interest-rate expectations, and geopolitical developments. Liquidity, bid-ask spreads, and volatility vary by time of day and currency pair. Regulation exists to protect traders, with oversight by national authorities and global bodies; practices differ by jurisdiction. Trading entails significant risk, including leverage-driven losses.