Forex is short for foreign exchange. When one speaks of a forex profit or loss, he is talking about the increased or decreased value of an investment caused solely by currency movements. For example, if an investor thought that the dollar was weak, he might purchase German money markets. The investor's account might earn 3% annualized, but the real profit or loss could be in how the DM (German mark) moves against the US$ (United States dollar). If the investor held the DM money market for an entire year, and if the DM rose 5% against the dollar, the investment.

Forex Trading is to buy and sell a set of currencies part of the Forex Market like the Euro (EUR), American Dollar (USD), Canadian Dollar (CAD), etc. For more information refers to Foreign exchange page

Exchange Rate

In finance, the exchange rate between two currencies specifies how much one currency is worth in terms of the other. For example an exchange rate of 120 Japanese Yen to the Dollar means that ¥120 is worth the same as $1. An exchange rate is also known as a foreign-exchange rate, forex rate or FX rate. The Currency Market or Foreign Exchange Market is the largest market in the world. By some estimates, about $2 trillion worth of currency changes hands every day.

An exchange rate quotation is given by stating the number of units of a price currency that can be bought in terms of a unit currency. For example, in a quotation that says the Euro-United States Dollar exchange rate is 1.2 dollars per euro, the price currency is the dollar and the unit currency is the euro.

Quotes using a country's home currency as the price currency are known as direct or price quotation (from that country's perspective) ([1]) and are used in the US and most other countries.

Quotes using a country's home currency as the unit currency are known as indirect or quality terms quotation and are used in British newspapers and are also common in Australia, New Zealand and Canada.

* direct quotation: Home Currency / Foreign Currency
* indirect quotation: Foreign Currency / Home Currency

Note that, using direct quotation, if a unit currency is strengthening (i.e. appreciating, i.e. if the currency is becoming more valuable) then the exchange rate number increases. Conversely if the price currency is strengthening, the exchange rate number decreases and the unit currency is depreciating.

Foreign exchange service

In telecommunication, a foreign exchange service (FX) is a network-provided service in which a telephone in a given local exchange area is connected, via a private line, to a central office in another, i.e., "foreign", exchange, rather than the local exchange area's central office.

To call originators, it appears that the subscriber having the FX service is located in the foreign exchange area.

Foreign exchange market

The currency market or foreign exchange market is the market where one currency is traded for another. It is one of the largest markets in the world. By some estimates, about $2 trillion worth of currency changes hands every day.

Some of the participants in this market are simply seeking to exchange a foreign currency for their own (like tourists or multinational corporations which must pay wages and other expenses in different nations than they sell products in). However, a large part of this market is made up of currency traders, who bet on movements in the value of currency much like one would in a stock market. Currency traders can obtain substantial gains by taking advantage of even small fluctuations in currency price. These traders also profit from arbitrage. Foreign currency exchange is unique in the financial world in that exchange rates (the price of one a currency in terms of another) are highly sensitive to many factors, many different investors have access to the market, the market is very liquid, and currency is traded around the clock.

Learn more about market dynamics and currencies by reading about the exchange rate.