Forex define
Family I · Instruments
Not to be confused with forex, forex business, forex god.
Forex is the market where currencies are bought and sold against one another. It is an over-the-counter market, meaning trades are executed bilaterally between counterparties rather than on a single central exchange. Prices are quoted as currency pairs, such as EUR/USD, where the first currency is the base and the second is the quote currency.
How a forex quote works
A forex quote states how much of the quote currency is needed to buy one unit of the base currency. In EUR/USD = 1.0850, one euro costs 1.0850 US dollars. The difference between the bid and the ask is the spread, which is the primary transaction cost in most retail forex trading.
Because currencies trade in pairs, every position is simultaneously long one currency and short another. A trader who buys EUR/USD is long euros and short dollars.
Worked example
Market structure and participants
Forex has no single physical location. Trading occurs across a network of banks, brokers, and electronic venues, and it runs continuously from the Asia session through London and New York. The most actively traded pairs, such as EUR/USD, USD/JPY, and GBP/USD, are known as majors; pairs that do not include the US dollar are crosses.
Participants include central banks, commercial banks, corporations hedging currency exposure, and retail traders. Leverage and margin requirements for retail accounts vary by jurisdiction and broker, so the amount of capital required to control a given position size is not uniform.
Related terms
See currency pair, spread, and pip for definitions of the components used in forex pricing.
Often confused with
- forex
- Forex is the global over-the-counter market where national currencies are exchanged in pairs, with prices quoted as the amount of one currency required to buy another.
- forex business
- Forex business refers to the commercial activity of trading national currencies in the foreign exchange market, either as a principal dealer, broker, or institutional participant, for profit or client facilitation.
- forex god
- A "forex god" is an informal, unregulated marketing label applied to a currency trader or signal provider who is presented as consistently profitable, and it carries no certification, licence or verified performance record.