What is the Foreign Exchange Market?

The foreign exchange market, commonly called the forex market or FX, is the backbone of global economic existence. It is an exchange where one currency is exchanged for another e.g. converting the Australia dollar to US dollars.

With over $4 trillion exchanging hands daily, it is the world’s largest financial market.

Participants of the Foreign Exchange Market

Traditionally this market was only available to banks and large financial institutions which converted currencies for those that required it. Examples are corporations that export/import goods and families who exchange money for a holiday. Throughout the last 10 years technology advances has allowed the Foreign Exchange Market to evolve and become accessible to everyone. Where multi-million dollars accounts were previously needed to participate or ‘trade’ this market, it now only requires a few hundred dollars and an internet connection. This allows everyone to trade (speculate) and profit from currency price movements.

What is Forex Trading

With the barriers of this market reduced, people around the world are speculating on the movement of a currency to make a profit. By speculating, a trader may place positions on currency pairs anticipating a move in one director or the other.

The exchanging of different Currencies is done through a broker who quotes the value of one currency against another via pairs, for example the AUDUSD pair. This quotes the value of the Australian Dollar against the US Dollar. If a broker quoted the AUDUSD at 0.6573c, they are saying 1 Australian Dollar will buy 65.73 US Cents.