Glossary
Foreign exchange (forex)
The global over-the-counter market for trading currencies, the largest financial market by daily volume.
On this page
The foreign exchange market, or forex, is where currencies are bought and sold against one another. It has no central exchange: banks, dealers, funds, companies and retail platforms trade over the counter through electronic networks spread across financial centers. It is by far the largest financial market; the Bank for International Settlements' 2022 survey put average turnover at about $7.5 trillion a day, with the US dollar on one side of roughly 88% of all trades.
How it works
Trading follows the sun from Sydney and Tokyo to London and New York, running around the clock from Sunday evening to Friday afternoon US time. Prices are quoted as currency pairs, such as EUR/USD or USD/JPY, and small moves are measured in pips, usually the fourth decimal place (the second for yen pairs).
Turnover comes in several forms: spot trades (settled in two business days for most pairs), forwards for a later date, and FX swaps, which combine the two and make up the largest share of volume.
Who uses it
Most volume is professional: banks managing their own and clients' flows, importers and exporters hedging, asset managers converting for foreign investments, and central banks managing reserves. Retail forex is a small slice. In the US, retail forex dealers must register with the CFTC and be NFA members, and leverage on major pairs is capped at 50:1.