Forex stand for
Family I · Instruments
Not to be confused with cfd stands for, pip stand for.
Forex is the short form of foreign exchange, and it names both the market for currencies and the activity of trading them. It is an over-the-counter market: participants deal through a network of banks, brokers and electronic venues rather than a single central exchange. The instruments traded are currency pairs, such as EUR/USD or USD/JPY, where one currency is priced in another.
What the abbreviation covers
The word is used in three related senses:
- The market itself, often called the FX or forex market.
- The product category, as in "forex pairs" or "forex trading".
- The conversion of one currency into another for settlement, hedging or speculation.
Retail access is usually through a broker that quotes a bid and an ask on each pair. The difference between those two prices, the spread, is a cost of the transaction. Trading hours run continuously through the week as financial centres open and close, though the exact schedule and any holiday closures vary by venue and jurisdiction.
Worked example
A trader buys 10,000 euros against the US dollar at an ask of 1.0850 and later sells at a bid of 1.0900.
The result excludes the spread already embedded in the quoted prices, any commission and any financing charge on the position.
Scope and variation
Forex is not limited to spot transactions. It also covers forwards, swaps and options on currencies, used by companies to manage payment risk and by funds to take directional views. Retail leverage limits, margin requirements, permitted products and tax treatment differ between countries and regulators, so the same trade can carry different terms from one jurisdiction to another.
Often confused with
- cfd stands for
- CFD stands for contract for difference, a derivative that settles the change in an underlying price, whereas forex is the underlying currency market itself; the visible sign is that a CFD has an expiry or financing term and a forex quote is simply an exchange rate.
- pip stand for
- A pip is the smallest conventional price increment of a currency pair, while forex is the market in which those pairs trade; the visible sign is that a pip is a unit of measurement and forex is the venue and product category.