What is Foreign Exchange (Forex or FX)?

Forex describes trading in the many currencies of the world. It is the largest form of exchange for the global decentralized trading of international currencies, providing the greatest liquidity to investors. Daily volume in the currency markets is around $4 trillion. By comparison, the NYSE daily volume averages $25 billion a day.

The foreign exchange market is the most liquid financial market in the world. Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. Unlike the equities and futures markets, FOREX has no centralized exchange. Trading takes place over-the-counter, 24-hours a day directly between the two parties of a trade over the telephone and electronically.

The following video describes the benefits of trading Forex:

Forex Benefits

Participants in Forex include central banks, corporations, individual investors and speculators, and hedge funds. With the advent of electronic trading platforms, self-directed investors and smaller financial firms now have access to the same liquidity as larger market participants.

Trading, or speculation, makes up 95% of the daily volume. The other 5% of daily volume consists of governments and commercial companies converting one currency into another from buying and selling goods and services.


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