Definition
Forex is the global market where one currency is exchanged for another. It has no single central exchange: banks, brokers, companies, funds and central banks trade through dealer networks and electronic platforms.
How it works
Every forex trade swaps one currency for another at an agreed rate, so each price compares two economies. Trading is over the counter: dealers quote prices to customers, and quotes can differ slightly between providers. Spot trades are for near-term delivery, while forwards and swaps fix terms for later dates.
Rates respond to interest-rate expectations, inflation, growth, trade balances and risk sentiment, and trading runs across time zones about five days a week. Many retail products add margin and leverage, which magnify gains and losses alike, so position size and costs matter as much as direction.
Illustrative example
Illustrative: a Hong Kong importer must pay 20,000 euros in three months, and EUR/HKD is 8.50 today. The payment would cost 20,000 × 8.50 = HK$170,000, but if the rate moved to 8.70 it would cost HK$174,000, which is HK$4,000 (about 2.35%) more.
What to watch for
Leveraged forex positions can lose more than the margin first posted, and spreads, protections and leverage limits vary by provider and jurisdiction. Past exchange-rate trends do not predict future moves.