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Definition of 'Forex'

Forex is shorthand for Foreign Exchange and usually refers to the Foreign Exchange Spot market. The word is a portmanteau of "foreign currency" and "exchange" - which simply means that the words have been combine in an easy way to express these concepts in a single word.

The foreign exchange market (forex, FX, or currency market) is a worldwide decentralized over-the-counter financial market for the trading of currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies.

The primary purpose of the foreign exchange market is to assist international trade and investment, by allowing businesses to convert one currency to another currency. For example, it permits a US business to import British goods and pay Pound Sterling (GBP), even though the business's income is in United States Dollars (USD). It also supports speculation, and facilitates the carry trade, in which investors borrow low-yielding currencies and lend (invest in) high-yielding currencies, and which (it has been claimed) may lead to loss of competitiveness in some countries.

Top Ten Traded Currencies

1. United States Dollar (USD) 84.9%
2. Euro (EUR) 39.1%
3. Japanese Yen (JPY) 19.0%
4. Pound Sterling (GBP) 12.9%
5. Australian Dollar (AUD) 7.6%
6. Swiss Franc (CHF) 6.4%
7. Canadian Dollar (CAD) 5.3%
8. Hong Kong Dollar (HKD) 2.4%
9. Swedish Krona (SEK) 2.2%
10. New Zealand Dollar (NZD) 1.6%

11. Other Currencies 18.6%

(Total is 200% because there needs to be a currency on either side of the trade.)

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