The words foreign [currency] and exchange are combined to form the acronym forex (FX). The process of converting one currency into another for a variety of purposes—usually trade, tourism, or commerce—is known as foreign exchange. The Bank for International Settlements, a global bank that serves national central banks, stated in a 2022 triennial report that the daily global volume of FX trading hit $7.5 trillion in 2022.
Read on to learn about the forex markets, what they’re used for, and how to start trading.
KEY LESSONS
1 The foreign exchange (forex or FX) market is a global marketplace where national currencies are exchanged.
Forex markets are the world’s largest and most liquid asset markets due to the global reach of trade, commerce, and finance.
Currencies are traded in pairs as exchange rate pairs. EUR/USD, for example, is a currency pair used to trade the euro against the US dollar.
Forex markets operate as spot (cash) markets as well as derivatives markets, which provide forwards, futures, options, and currency swaps.
Forex is used by some market participants to hedge against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios, among other things.