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Forex (Foreign Exchange)

In short

The market for currency trading — largest financial market in the world

Forex is where currencies are exchanged. If you think the Euro will rise against the Dollar, you buy EUR/USD. The forex market trades $7.5 trillion per day — larger than all stock markets combined. Highly leveraged and 24/5.

Foreign exchange markets determine currency values and facilitate international trade. Major pairs (EUR/USD, GBP/USD) have tight spreads; exotic pairs are more volatile. Forex is largely driven by interest rate differentials, economic growth differentials, and geopolitical events.

Related concepts

  • Alternative Investments — Alternative investments are anything outside stocks, bonds, and cash — real estate, hedge funds, private equity, commodities, and crypto. They often have low correlation to traditional markets, improving portfolio diversification.
  • Inflation Rate — Inflation measures how fast prices are rising. At 2%, things cost 2% more each year — acceptable. At 8%, your money loses value fast, and the Fed raises rates to fight it, which usually hurts stocks.
  • Fed Funds Rate — The Fed funds rate is the interest rate banks charge each other overnight. When the Fed raises it, borrowing becomes more expensive everywhere — mortgages, car loans, business loans. Higher rates usually hurt stocks, especially growth stocks.