What Is Foreign Exchange (Forex)?
Foreign exchange, commonly shortened to forex or FX, is a decentralised, over-the-counter (OTC) market where global currencies are traded. It is the world’s largest and most liquid financial market, with currencies bought and sold around the clock across major financial centres. Rather than trading on a single central exchange, forex operates through a global network of banks, institutions and brokers.
How the Forex Market Works
Currencies are traded in pairs, such as EUR/USD, where one currency is exchanged for another. The price reflects how much of the second currency is needed to buy one unit of the first. Because it is decentralised and spread across time zones, the forex market runs 24 hours a day during the trading week, moving between sessions in Asia, Europe and the Americas.
Key Features of the Forex Market
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The largest financial market by daily trading volume
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High liquidity, especially in major currency pairs
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Open 24 hours a day across the trading week
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Traded over the counter rather than on a central exchange
Points to Weigh in Forex Trading
The forex market can move quickly in response to economic data, central bank decisions and geopolitical events. It is commonly traded with leverage, which magnifies both gains and losses and means losses can exceed the initial deposit. High liquidity does not remove volatility, and currency prices can shift sharply around major news.
Why the Forex Market Matters
Foreign exchange underpins global trade and investment, setting the prices at which currencies are exchanged worldwide. Understanding how the market works and what drives currency moves is a foundation for anyone active in it. At VT Markets, traders can access a wide range of currency pairs as part of a considered approach to the forex market.
Risk Warning:Trading CFDs involves significant risk and may not be suitable for all investors. Losses can exceed your initial deposit. Please ensure you fully understand the risks involved before trading.
