What is Forex?

Forex, short for foreign exchange, is the market where one currency is exchanged for another.

You participate in foreign exchange whenever you convert money from one currency into another.

If you travel from Europe to Japan and exchange euros for Japanese yen, for example, you are taking part in a foreign exchange transaction.

Forex is also used extensively by:

International businesses frequently receive income and make payments in different currencies.

Suppose a European company purchases equipment from a US supplier.

If the invoice is denominated in US dollars, the European company may need to exchange euros for dollars before making payment.

Millions of transactions like this take place throughout the global economy.

The foreign exchange market includes several types of participants.

Major international banks conduct currency transactions for clients and for their own operations.

Central banks can influence currencies through interest-rate policy, monetary policy and, in some circumstances, direct market intervention.

International businesses exchange currencies when conducting cross-border trade.

Investment funds and asset managers may trade currencies as part of their investment strategies or to manage foreign-exchange exposure.

Retail traders participate in currency markets through brokers and trading platforms.

Unlike most shares, the global foreign exchange market is primarily an over-the-counter, or OTC, market.

This means transactions take place through a global network rather than through one central stock exchange.

Major financial centres include:

Because activity passes between different financial centres, the forex market operates around the clock during much of the working week.