What is the forex market?
Learn what the foreign exchange market is, who uses it and why it is the largest market in the world.
Exchanging one currency for another
Forex, short for foreign exchange, is the market where currencies are bought and sold. Every time someone changes manat into dollars at a bank, or a company pays a supplier in euros, the forex market is involved.
It is the largest financial market in the world. Several trillion dollars change hands every single day, far more than in all the world's stock markets combined.
Who uses forex
Companies use it to pay for imports, receive money for exports and protect themselves from currency changes.
Banks trade currencies for their clients and for themselves.
Central banks, such as the Central Bank of Azerbaijan, buy and sell currencies to manage their country's money.
Investors and funds buy foreign currencies to invest abroad.
Travelers and people sending money home use it too, even if they never think about it.
Speculators try to profit from changes in exchange rates. This includes individual traders using online platforms.
How it works
Unlike a stock exchange, the forex market does not have one central building. It is a global network of banks and financial institutions trading with each other electronically. It runs 24 hours a day, five days a week, moving from Asia to Europe to America as the day passes.
Why ordinary people should care
Even if you never trade currencies, exchange rates affect your life. They influence the prices of imported goods, the cost of travel, the value of money sent from abroad and the value of savings kept in different currencies.
A word of caution
In recent years, many online platforms have advertised forex trading as an easy way to make money from home. The reality is very different. Short-term currency trading is very hard, especially with leverage, and most individual traders lose money. Many of the scams we discuss in the Risk section also use forex as their cover story.
In this section, we explain how forex really works, so you can understand the news, protect your savings and recognize false promises.
Key takeaways
- Forex is the global market for exchanging currencies.
- It is the largest financial market in the world.
- Companies, banks, central banks, investors and travelers all use it.
- There is no central exchange. It is a global electronic network open 24 hours a day on weekdays.
- Exchange rates affect prices, travel costs and the value of your savings.
- Most individuals who trade forex for short-term profit lose money.
Educational content only, not investment advice. Markets carry risk: only invest money you can afford to lose.