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What is foreign exchange?

What is foreign exchange?

The Foreign Exchange is abbreviated Forex, and it refers to the global network of 24/7 currency trading which is the largest and most liquid market in the world economy.

Several of the largest Foreign Exchange markets are in London, New York, Singapore, and Tokyo, but there are other market centers and over-the-counter transactions which are part of what is known as the Forex. All currency exchanged for another currency is considered a Forex transaction, including currency exchanges by tourists at kiosks, but it gets much larger than that.

Futures, forwards, and derivatives on Forex are the primary instruments used, and trillions of dollars-worth of currency are traded on Forex every day, mostly between very large banking institutions. This dwarfs the daily trading volume of all stock exchanges combined.

Currency swaps and interest rate swaps are examples of large transactions, and these might be traded between large institutions or even the central banks of countries.

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Keywords: forward contracts, currency swaps, interest rate swaps, spot trading currency,