What is forex?

The market for currencies

Forex is the worldwide market where currencies are traded against each other. It turns over around 7 trillion dollars a day, which makes it the largest financial market in the world. You have already taken part in it if you have ever travelled abroad. At the airport exchange booth a screen shows a rate for each currency, and you hand over one currency to receive another. That rate is an exchange rate: the price of one currency measured in another.

Why the rate moving matters

Exchange rates change all the time, and every change is a profit or a loss for whoever holds the position. Say you travel to Japan and trade your dollars for yen. In market terms you sold dollars and bought yen. When you come home you exchange the yen you have left back into dollars, and the rate is no longer the one you paid on the way out. You get back a little more or a little less than you expected. Those fluctuations are the whole opportunity in currency trading: buy a currency you expect to strengthen, and sell it once it has.

Trade, tourism and speculation

The forex market is vast and decentralized: there is no single exchange, and prices move around the clock while any major financial center is open. Only a small share of the volume comes from international trade and tourism. Most of it is speculative, traders buying a currency in the hope of selling it at a higher price later.

How big it is

The whole market trades about 7 trillion dollars a day, and the spot market, the part that matters to most traders, accounts for roughly 2 trillion of that. The New York Stock Exchange, the largest stock market in the world, trades about 200 billion dollars a day, so the currency market is more than thirty times its size. Retail traders are a small slice of it, around 3 to 5 percent of the daily volume, or somewhere between 200 and 300 billion dollars. The market is open 24 hours a day, five days a week, and activity follows the sun from one financial center to the next.

Where the moves come from

Every pair you will trade has a rate, a bid and an ask, and a story behind its moves: interest rates, economic releases and the flows between the big players. The Fundamentals page follows those drivers for the pairs you trade, so the next move in a rate stops looking random.