The term Forex is derived by shortening and combining the terms ‘foreign currency’ and ‘exchange‘. Forex currency trading refers to the process of buying and exchanging money in foreign currencies through a foreign exchange market to take advantage of, or hedge against, price fluctuations between given currencies.
Typically currencies are traded against each other in exchange rate pairs which reflect the value of one currency against another, hence the term ‘exchange rate’ for a given currency.
The foreign exchange market is used to trade currencies but there is no actual physical place where this occurs, instead the trade is conducted electronically through a virtual market on computer networks.
Forex currency trading is mainly conducted to protect businesses from fluctuations in currency values or for speculative purposes. By buying a currency at a specific value they protect themselves from any future changes in its value; this is referred to as ‘hedging’. Speculation in foreign currency refers to taking advantage of price fluctuations in currency to make money when the price of a given currency moves up or down.