One money swapped for another's worth:the largest market on the earth.
The foreign exchange market, in which one currency is exchanged for another.
It is the largest financial market in the world by turnover, which the Bank for International Settlements measures in a survey every three years, and it trades 24 hours a day, five days a week.
In plain words
Forex, short for foreign exchange, is the market in which one currency is exchanged for another. It has no central exchange: banks, companies, funds, central banks and individuals deal with one another electronically, in what is called an over-the-counter market. Because trading passes from one financial centre to the next around the world, it runs around the clock through the working week.
See it move
Forex market and Banks
Why it matters
The size and continuous hours of the market mean that the most traded pairs can usually be dealt at any time during the week with narrow spreads. Conditions are not uniform: activity and spreads vary with the time of day, and the market is closed at weekends.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A company holding euros has to pay a supplier 110,000 US dollars, and EUR/USD is 1.1000 (invented figures).
- 1Euros needed = 110,000 ÷ 1.1000 = 100,000
- 2At a rate of 1.0000110,000 ÷ 1.0000 = 110,000 euros
- 3Difference = 110,000 − 100,000 = 10,000 euros
The same bill costs 10,000 euros more at the lower rate, which is why exchange rates matter well beyond trading.
A common mistake
Forex is sometimes pictured as a single marketplace with one official price. It is a network of dealers, so prices differ slightly from one provider to another at any moment.
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Educational information, not investment advice or a recommendation to trade.