Forex

Definition
An over-the-counter market where buyers and sellers conduct foreign exchange transactions. The
Forex market is useful because it helps enable trade and transactions between countries, and it
also allows an investment opportunity for risk seeking investors who don't mind engaging in
speculation. Individuals who trade in the Forex market typically look carefully at a country's
economic and political situation, as these factors can influence the direction of its currency. One
of the unique aspects of the Forex market is that the volume of trading is so high, partially
because the units exchanged are so small.
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Foreign exchange transaction is a type of currency transaction that involves two

countries. Generally, a foreign exchange transaction involves conversion of
currency of one country with that of another. The conversion of currency in a foreign
exchange transaction can be performed through

What is 'Forex - FX'

Forex (FX) is the market in which currencies are traded. The forex market is the largest, most
liquid market in the world, with average traded values that can be trillions of dollars per day. It
includes all of the currencies in the world.
There is no central marketplace for currency exchange; trade is conducted over the counter. The
forex market is open 24 hours a day, five days a week, except for holidays, and currencies are
traded worldwide among the major financial centers of London, New York, Tokyo, Zurich,
Frankfurt, Hong Kong, Singapore, Paris and Sydney. The forex is the largest market in the world
in terms of the total cash value traded, and any person, firm or country may participate in this
market.

Next Up
1. Foreign Exchange
2. Spot Date
3. Forex Spot Rate
4. Short Date Forward
5.
BREAKING DOWN 'Forex - FX'

Forex transactions take place on either a spot or a forward basis.

Spot Transactions

A spot deal is for immediate delivery, which is defined as two business days for most currency
pairs. The major exception is the purchase or sale of U.S. dollars vs. Canadian dollars, which is
settled in one business day. The business day calculation excludes Saturdays, Sundays and legal
holidays in either currency of the traded pair. During the Christmas and Easter season, some spot
trades can take as long as six days to settle. Funds are exchanged on the settlement date, not the
transaction date.
The U.S. dollar is the most actively traded currency. The euro is the most actively traded counter
currency, followed by the Japanese yen, British pound and Swiss franc.
Market moves are driven by a combination of speculation, especially in the short term; economic
strength and growth; and interest rate differentials.
Forward Transactions

Any forex transaction that settles for a date later than spot is considered a "forward." The price is
calculated by adjusting the spot rate to account for the difference in interest rates between the
two currencies. The amount of the adjustment is called "forward points." The forward points
reflect only the interest rate differential between two markets. They are not a forecast of how the
spot market will trade at a date in the future.
A forward is a tailor-made contract: it can be for any amount of money and can settle on any date
that's not a weekend or holiday. Transactions with maturities longer than a year are relatively
unusual, but are possible. As in a spot transaction, funds are exchanged on the settlement date.
Futures

A "future" is similar to a forward in that it's for a date longer than spot, and the price has the
same basis. Unlike a forward, it's traded on an exchange, and can only be executed for specified
amounts and dates. With a futures contract, the buyer pays a portion of the value of the contract
up front. That value is marked-to-market daily, and the buyer either pays or receives money
based on the change in value. Futures are most commonly used by speculators, and the contracts
are usually closed out before maturity.

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