foreignexchange

Foreign exchange, often abbreviated as FX, refers to the global market for converting one currency into another. It encompasses the networks, instruments, and mechanisms by which currencies are traded, including spot transactions, forward contracts, futures, options, and currency swaps. The FX market is the largest financial market by daily turnover and operates without a single centralized exchange; most trading occurs over the counter through banks and electronic platforms, with activity continuing around the world as markets in different time zones overlap.

In FX trading, currencies are quoted as pairs, such as EUR/USD, where the first currency is the base and the second is the quote. The price expresses how much of the quote currency is needed to buy one unit of the base currency. Quotes include a bid (the price at which a market participant is willing to buy) and an ask (the price at which they are willing to sell). Spot trades typically settle in two business days, while forwards, futures, and swaps settle on future dates as agreed.

Key participants include banks, multinational corporations, hedge funds, asset managers, central banks, and retail traders who access the market through brokers or electronic platforms. Major market centers are London, New York, and Tokyo, with the U.S. dollar, euro, yen, pound sterling, Swiss franc, and other currencies forming the core liquidity pool.

Prices are driven by supply and demand for currencies, influenced by interest rate differentials, inflation, economic growth, trade balances, political stability, and risk sentiment. The FX market serves hedging, pricing, and investment purposes, but it also carries risks such as volatility, leverage-driven losses, and liquidity gaps, prompting ongoing regulatory and risk-management efforts.