Forex stands for foreign exchange, and is the world’s largest financial market in terms of trading volumes, with transactions worth trillions of dollars taking place every single day. In basic terms, the forex market is how both companies and individuals convert money from one currency into another.
Unlike with stocks or bonds, there is no centralised exchange for transactions in the forex market, so instead currencies are traded through an international network of banks, brokers, and dealing desks, commonly known as the ‘interbank market’. Trading in forex is possible at any time of day or night during the week, as currency trading occurs twenty-four hours per day around the world’s financial centres.
Everything from interest rates, inflation, and government policy, to employment figures and demand for imports and exports can influence the value of a currency, causing prices to rise or fall. Forex prices are always quoted in pairs, representing how much of one currency can be purchased with another at that time.
Both the susceptibility of the forex markets to a wide range of pricing factors and global events, along with the huge volumes of currencies exchanged, mean that the forex markets are often highly volatile, providing unparalleled opportunities for short term traders to profit.