Forex is short for foreign exchange – the conversion of one currency into another. It’s both the world’s biggest financial market and one of the most liquid, with trillions of dollars in currencies traded every single day.
While most consumers will have traded forex in order to go on holiday or purchase something abroad, the vast majority of forex trading is undertaken by traders and businesses who are attempting to make a profit.
They do so by taking advantage of fluctuating exchange rates, buying and selling large volumes of currencies as their prices move against each other. And unlike equities or commodities, they don’t have to buy and sell forex via an exchange – instead forex is traded directly between the buyer and the seller in what is referred to as an over-the-counter (OTC) market.
That means that forex is tradable 24 hours a day, with few limits to making trades.
As well as those speculating for profit, central banks and businesses will trade forex in order to maintain money supply or facilitate international trade.