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FOREX is the Foreign Exchange Market. It is a global, decentralized over-the-counter market for the trading of currencies. FOREX allows anyone to exchange one form of currency for another. For example, Canadian dollars for US dollars, British Pounds or EUROs.
The Foreign Exchange Market runs 24 hours a day from Monday to Friday and is one of the most actively traded markets in the world. On average $5 trillion is traded daily on the foreign exchange market. In Canada firms that deal in the FOREX market are overseen by IIROC.
Most of the trades done on the foreign exchange market are made with the goal of making a profit on the currency exchange. For example, I could trade $100 Canadian for the equivalent in British pounds at the current rate. Let’s say at the time one pound is worth $1.25 Canadian which would get me 80 pounds. If the value of the pound increases relative to the Canadian dollar, I could potentially do another exchange to get back more Canadian dollars for my British pounds than I originally traded. In our example let’s say that one pound become worth $1.35 Canadian. My 80 pounds are now worth $108 Canadian.
FOREX exchanges can be made immediately, what are known as Spot FOREX, but they can also be traded as derivatives. Derivatives include Forward FOREX exchanges and Future FOREX exchanges, which are contracts that allow you to buy or sell a set amount of currency at a set rate, at a future date.
Trading FOREX is speculative and extremely risky due to the volatility of global currencies.
FOREX has also been a very popular way for scammers to commit investment fraud. You can read more on FOREX scams in our previous blog post on Exempt Securities Scams & Forex Scams.