FX and Forex refer to Foreign Exchange, the exchange of one currency for another. Foreign Exchange is traded "over the counter" on an inter-bank system, a network of several thousand banks, although most trading is done by a few hundred such institutions. According to the Bank of International Settlement's Triennial Survey in 2004, the average daily turnover in foreign exchange markets totaled $1.9 trillion.

The Foreign Exchange market, originally only accessible to large corporate banks and international corporations, is now available to speculative traders large and small. When trading Forex, investors are betting that one currency will appreciate against another one, and they will collect the change when they return to the original currency in which the position was established. [See bid/ask spread]

Margin Trading

The Foreign Exchange market enjoys a few benefits over traditional equities, futures and derivatives markets. Like futures, Forex is traded using margin based on a "good faith deposit" and not a loan. Such leverage magnifies one's exposure to the market to the market, increasing potential profits and losses.

24 Hour Market

Also, since security markets are traded in exchange for international currencies, the forex markets are open 24 hours a day and seven days a week (though liquidity can differ over certain period).

Rollover Interest in Forex

Another important facet of currency trading are interest rate spreads. Though it is usually not considered, money has a yield paid through savings and lending. When the interest rate attached to one nation's currency is higher than another's, someone who has bought the money with a higher yield and sold the lower one will collect the difference. This spread (called "The Carry") is collected every day.

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