The largest financial market in the world

The largest financial market in the world

The Forex market is the largest financial market in the world. Nearly $2 trillion worth of foreign currencies trade back and forth across the Forex market every day. Forex stands for the foreign exchange—the financial exchange on which governments, banks, international corporations, hedge funds, and individual investors exchange foreign currencies.

For instance, when you fly to another country, one of the first things you do when you get off the plane is look for a currency exchange counter where you can exchange your U.S. dollars for whatever currency is used in the country you are visiting—such as British pounds, Japanese yen, or euros. Why do you do this? Because you know that the cab driver, the hotel clerk, and the souvenir salesperson are all going to want you to pay them in their national currency, not U.S. dollars.

When you slide your U.S. dollars over to the teller and he or she slides back a stack of multicolored bills—let’s face it, foreign money is a lot more colorful than the greenback—you have just participated in the Forex market. You exchanged one currency for another. Now, if you stop and think about all the people who travel, all the businesses that operate in multiple countries, and all the governments that are exchanging money, you can start to get an idea of how big the Forex market really is.

Those of you who travel abroad frequently have probably also noticed that the exchange rates at the currency counter at the airport never seem to be the same. They are constantly changing.

Sometimes you get a lot more bang for your buck when you exchange your money, and sometimes you have to exchange a few more U.S. dollars just to get by. That is because exchange rates are constantly changing, and it is these changes in exchange rates that enable you to make a lot of money in the Forex market.