Foreign exchange – or forex – involves the purchase of one currency with the simultaneous sale of another.
Forex trading has increasingly gained in popularity over recent years, evolving into one of the largest and most liquid financial markets in the world. The vast majority of this huge figure comprises speculators' attempts to anticipate market movements, by predicting that one currency will either rise or fall in value against another currency.
Forex trading pairs
Major forex pairs include Australian dollar against US dollar; Euro against US dollar; Pound against US dollar; Euro against British pound and US dollar against Japanese yen, represented as AUD/USD; EUR/USD; GBP/USD; EUR/GBP and USD/JPY.
An example of a forex trade would be to buy the Australian dollar (AUD), while selling the US dollar (USD). This is an example of placing a 'buy' trade on the forex pair AUD/USD.
Once you have chosen your forex trade, there are two types of exchange-traded forex markets, known as Spot and Forward. Spot forex trades are intended for short-term trading, while Forward forex trades allow you to take a longer-term position. See one of our practical forex examples.
To find out more about what influences one currency against another, see our twice-daily Forex Focus. Each update includes performance charts with accompanying analyses of three topical currency pairs. We also offer a forex seminar, which discusses the key areas of the foreign exchange market.