Foreign exchange is the simultaneous buying of one currency and selling of another. Currencies are traded through a broker or dealer and are executed in currency pairs; for example, the Euro Dollar and the US Dollar (EUR/USD) or the British Pound and the Japanese Yen (GBP/JPY).
The Foreign Exchange, also referred as “Forex” is the largest financial market in the world, with an estimated volume of $4 trillion in currencies traded daily. Forex provides income to millions of traders and large banks worldwide. It is the mechanism by which currencies are valued relative to one another, and exchanged. An individual or institution buys one currency and sells another in a simultaneous transaction. Currency trading always occurs in pairs where one currency is sold for another. The value of a currency is a reflection of the condition of that country’s economy with respect to other major economies. A trader can earn money by either buying or selling the currency.
Unlike other financial markets, the Forex spot market has neither a physical location nor a central exchange. It operates through an electronic network of banks, corporations, and individuals trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one time zone to another across the major financial centers. The fact that there is no centralized exchange is important to keep in mind as it permeates all aspects of the Forex experience.