Chapter 2: What is foreign exchange?

The abbreviations and words ‘FX’, ‘forex’ and ‘foreign exchange’ are all interchangeable terms used to describe the market in which the currency of one country is exchanged for that of another country. Foreign exchange transactions may be as simple as those encountered by a tourist when visiting a local money changer to conduct a physical exchange of one currency for another, or as complex as multi-legged option strategies executed between global investment banks over electronic trading platforms with multiple settlement dates in multiple currencies. Each transaction forms a part of the foreign exchange market.

An important concept to understand from the beginning is that, unlike the equities and futures ...

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