What Is the Forex Market?

The foreign exchange market, also known as the forex market, is where currencies are traded.  Currencies are important because they allow us to purchase goods and services locally and across borders.  Currencies are exchanged so business can be completed between countries.

If you are living in the United States and want to buy cheese from France, then either you or the company from which you buy the cheese has to pay the French for the cheese in euros (EUR) to the seller of the cheese.  This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars (USD) into euros.

The same goes for traveling.  Imagine you are a tourist in Egypt.  However, in Egypt, dollars are not accepted as payment to see the pyramids.  Only the local currency is accepted.  You will need to exchange the dollars for the local currency, in this case, the Egyptian pound, at the current exchange rate.

One unique aspect of the forex market is that there is no central marketplace. Rather, currency is traded electronically over the counter (OTC).  All transactions occur via computer networks among traders around the world, rather than on one centralized exchange.  The market is open 24 hours a day, five and a half days a week.   Currencies are traded worldwide in the major financial centers of Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo, and Zurich—across almost every time zone.  So when the U.S. trading day ends, the forex market begins anew in Tokyo and Hong Kong.  Forex is an extremely active market, with price quotes changing constantly.

What Is the Forex Market?

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