The term Forex is short for foreign exchange and refers to the buying and selling of currency on the foreign exchange market.
Foreign exchange trading originated in Amsterdam, more than 500 years ago and is now the largest traded financial market, with trillions of dollars being traded every day.
The forex market is a decentralized market where trading occurs between traders, banks, brokers, and other financial institutions, buying and selling currencies that are coupled as currency pairs. Currency pairs comprise two different currencies, from two different countries. Most traders make use of about 70 different currency pairs which are classified as either [major pairs], [minor pairs], exotic pairs, or [commodity pairs].
Pairs will be illustrated as quotes and will have an associated price. For example, GBP/USD 1.28 would represent that the cost to buy 1 GBP is 1.28 USD.
You may well find that a broker will state a bid price and an ask price on their forex trading platforms. These refer to the price at which the currency pair is available to be sold, bid price, and at which the currency pair is available to be bought, ask price.
The forex market is open 24 hours a day, five days a week, with the largest trading centres being london, tokyo, new york, and singapore.
The market owes its popularity largely due to this ease of access to get started trading forex. A trader only needs access to a device that has a stable internet connection and a funded trading account.
Key takeaways
- Forex is short for foreign exchange
- Forex is traded by buying and selling currencies from two different countries, known as currency pairs
- There are four types of currency pairs, major pairs, minor pairs, exotic pairs, and commodity pairs
- The forex market is the most popular and therefore, liquid of the financial markets