What is Forex?

FOREX is  the Foreign Exchange market. Other names for this market include “retail forex,” “FX,” “Spot FX,” or “Spot.” It is, globally, the biggest financial market. To understand the scope of the FOREX, let’s compare it with another large financial market. Take the New York Stock Exchange for instance. Twenty-five million dollars are traded daily on the NYSE. Now compare that with the $2 trillion trading volume that takes place every 24 hours on the Foreign Exchange market. Get the picture?

Differences

Another way to define the FOREX is to look at what is actually being traded. Unlike the NYSE, what is being traded on the FOREX is not stock or share in a company, but simply currency, foreign currency, to be more specific.

A FOREX trade consists of a pair of currencies (e.g., EUR/US or JBY/GBP). The trade is made simultaneously: the buying of one currency and the selling of the other. The current value of a country’s currency is a numerical rendering of what the existing and prospective economic state of that country’s economy is valued at by the market. Thus, the exchange rate between two currencies is a reflection of the economies of those countries, as compared to each other.

Another difference between this market and other money markets, like the NYSE, is that there is no physical address for the foreign exchange market. It is defined as an Over-the-Counter (OTC) market or “Interbank market” because it is an electronic market that takes place within a banking network, 24-hours a day.

The US Dollar (USD) is the most traded currency on the FOREX, followed by the Euro (EUR), and then the Japanese Yen (JPY) and Great Britain Pound (GBP), equally. The other four most popularly traded currencies are the Australian Dollar (AUD), the Canadian Dollar (CAD), the Swiss Franc (CHF), and the New Zealand Dollar (NZD).