Foreign exchange (Forex) is simply the process of exchanging one currency for another. Transactions in foreign exchange include just about everything that includes the exchange of currency from the conversion of currency of a customer from any exchange kiosk and to the payments made in billions by different financial institutions and governments.
The Forex market is the biggest financial market around with a trading volume of around $5.3 trillion every day.
Table of Contents
The Market
No central marketplace for the foreign exchange market exists; therefore trades are performed over the counter. With the exception of holidays, the Forex market is open constantly with the major financial centers located New York, Tokyo, Zurich, Frankfurt, London, Hong Kong, Singapore, Sydney and Paris.
Participants
The most influential participants of the Forex market are the governments and the central banks. People that deal with small transactions of currency exchange have to communicate with banks or other financial institutions. There are also speculators; they are the types of traders that attempt to make favorable trades by capitalizing on the fluctuating levels of exchange rates in the market.
Terms
Currency Pair
Currency pairs are two currencies traded for one another (e.g. USD/EUR).
Bid/Ask
You are quoted an ask price or a bid price when trading Forex. An ask price is at what price you can buy the currency while the bid price is the price you wish to sell your currency.
Spread
This is the difference between the ask and bid price of a currency pair.
Pip
Traders call the smallest price change of currency a pip. For example 1 pip for the USD/JPY currency pair is 0.01.