Investor’s Manual: What Is Forex?

Understanding the basics of forex. This is a brief forex 101 defining what is forex.

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The foreign exchange market (forex) allows investors to trade two currencies against each other. Forex rates are what it costs to exchange one country’s currency for another country’s currency.

Trading forex is essentially pairs trading: You’re buying one currency and selling another. Let’s look at the U.S dollar versus the Canadian dollar (USD/CAD) as an example. If USD/CAD is trading at 1.37, that means $1 USD is equal to $1.37 CAD. The easiest way to understand the quote of any currency pair is to read the pair from left to right.

The forex market is a dynamic, global market open virtually around the clock. And because foreign exchange rates are based on global interest rates as well as macroeconomic and geopolitical conditions, they’re always fluctuating. 

The bulk of foreign exchange rate trading takes place on what’s called the interbank market, which is an over-the-counter (OTC) market that is not traded on an exchange. The interbank market consists of a web of banks, dealers, intermediary brokers, and retail traders.

Time to Hit the Market?

If you’re a sophisticated investor looking for international exposure and see long-term or short-term opportunities in cross-border interest rate differentials, the foreign exchange market may be worth a look.  

To learn more about forex, visit the TD Ameritrade forex page.

Also, watch the video below to learn more about forex trading.

Investing Basics: Forex
7:19
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Trading forex involves speculation, and the risk of loss can be substantial. Trading foreign exchange on margin carries a high level of risk, as well as its own unique risk factors. Forex investments are subject to counter-party risk, as there is no central clearing organization for these transactions. Before considering the trading of this product, please read the Forex Risk Disclosure. A forex dealer can be compensated via commission and/or spread on forex trades. TD Ameritrade is subsequently compensated by the forex dealer. Forex accounts are not protected by the Securities Investor Protection Corporation (SIPC). Diversification does not eliminate the risk of experiencing investment losses.

Futures and Forex trading services provided by TD Ameritrade Futures & Forex LLC. Trading privileges subject to review and approval. Not all clients will qualify. Forex accounts are not available to residents of Ohio or Arizona.



Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

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