What is forex trading?
Forex, short for foreign exchange, is the market where one currency is swapped for another. It is the largest financial market in the world: according to the Bank for International Settlements, trading averages several trillion US dollars a day, far more than all the world’s stock markets combined.
Who trades currencies
Most volume comes from banks dealing with each other and with large companies, fund managers and governments. A manufacturer paying a supplier abroad, a pension fund buying foreign shares and a tourist changing money at the airport all take part in the same market. Retail traders, individuals speculating on price moves through a broker, are a small but visible slice.
A market without a central exchange
Unlike shares, currencies are not traded on one exchange. Prices are agreed directly between banks and dealers around the world, which is why the market runs around the clock from Sunday evening to Friday evening, New York time, following business hours from Sydney to Tokyo, London and New York.
Why exchange rates move
- Interest rates. Money tends to flow toward currencies that pay higher returns, so central-bank decisions matter enormously.
- Economic data. Inflation, employment and growth figures shift expectations about future interest rates.
- Risk appetite. In calm markets investors reach for higher-yielding currencies; in a crisis they retreat to havens such as the US dollar, Japanese yen and Swiss franc.
- Trade and commodities. Countries that export oil, metals or food see their currencies track those prices.
Where to go next
Learn how to read a currency pair, then see how far pairs typically move with the swing odds explorer.