The Foreign Exchange Market, often shortened to Forex or FX, is the market in which the world’s currencies are traded. It is both the largest and most liquid market in the world; average traded values can be in the trillions of dollars per day. It does not have a central marketplace as trade is conducted over the counter through an international network of brokers and dealers. The Forex is open 24 hours a day for five days of the week excluding major holidays. Any individual, company or nation can participate in the FX.
The most common way entities participate in the FX is through buying something from another country. If a US company buys a steering column made in Germany, dollars must be exchanged for Euros. Individuals can also speculate in the FX by buying up currencies they think will increase in value and selling currencies they think will decrease in value. Currency is always evaluated in relation to other currencies. Monetary policy, political climate, import, and exports can all influence a currency’s value. The US dollar is the most actively traded currency, while the Euro is the most common counter currency used as a reference in a currency pair. Spot transactions, forward transactions and futures can all be traded on the foreign exchange.
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