What is the foreign exchange market?
The forex market is where currencies are traded. Currencies are important because they allow us to buy goods and services locally and across borders. In order to conduct foreign trade and business, international currencies need to be exchanged.
If you live in the US and want to buy cheese from France, you or the company from which you buy the cheese must pay the French for the cheese in Euros (EUR). This means that U.S. importers must convert the U.S. dollar (USD) equivalent into euros.
The same applies to travel. French tourists in Egypt cannot pay to visit the pyramids in euros because this is not the accepted currency locally. Tourists must convert Euros into local currency, in this case Egyptian Pounds, at the current exchange rate.
A unique feature of this international market is that there is no central market for foreign exchange. Instead, Forex trading is done electronically over-the-counter (OTC), which means that all trades are made across a computer network between traders around the world, rather than on a centralized exchange. Markets are open 24 hours a day, 5.5 days a week, and currencies are traded globally in major financial centers such as Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo and Zurich - virtually anywhere at any time. That means foreign exchange markets in Tokyo and Hong Kong will restart when the U.S. trading day ends. Therefore, the foreign exchange market can be very active at any time, and the quotations are constantly changing.