What is Forex?

This is the most common question people ask me. When my friends ask what I do for a living, I often struggle to explain in the clearest way possible what Forex really is. If I simply say that Forex is my way of making a living, they usually have no idea what trading in Forex entails. It's surprising, considering how large and popular this market is. With a daily trading volume exceeding 5 trillion dollars, Forex overshadows all other financial markets.

Simply put: Forex, or FX, is short for “Foreign Exchange”, which means the exchange of foreign currencies.

Exchanging one currency for another is called a transaction in Forex.

Let’s take an example. We are all familiar with currency exchange points at airports, government transactions for importing or exporting goods, and even buying something online from another country: all these actions are essentially currency transactions.

A massive number of transactions occur every day – this is why Forex has such a high daily turnover compared to other markets.

The New York Stock Exchange (NYSE) has a daily transaction volume of 22.4 billion dollars, while the foreign exchange market reaches a record 5 trillion dollars per day.

This activity happens five days a week, 24 hours a day, with traders constantly monitoring price movements from anywhere in the world using laptops or mobile phones. When we trade Forex, we can profit from currency fluctuations. These fluctuate constantly due to fundamental factors that shape the economic landscape of countries worldwide, as well as certain technical factors.

Until recently, Forex transactions were dominated by large financial institutions, corporations, central banks, hedge funds, and extremely wealthy individuals.

The rise of the internet changed all this. Now, an average investor, like you, can buy and sell currencies electronically.