What is Foreign Exchange and What are its Main Uses? - A Simple Guide

There are many reasons why a person might need to use a foreign exchange service.  So let us go right back to square one and explain what applies where – and when!  Foreign exchange applies to the largest financial marketplace in the world, accessed by traders all over the world, all times of the day.  Sometimes it is referred to simply as the Forex or FX market.

The foreign exchange market is divided into key sessions including the London session, Tokyo session, New York, Sydney…and so on.  Because it is accessed all over the world, it never sleeps.  Each day, the foreign exchange market receives a turnover of around $3 trillion.  Currencies are always traded in pairs – for example, Euro/US dollar is one major currency pair.  This is done electronically and there is no one central exchange through which trading is conducted.

That said, the forex market is strictly regulated within each nation by the relevant financial regulating body.  Within the United Kingdom, that is the Financial Services Authority (FSA).

Here are some frequent reasons why a regular person might need to use a service connected to the foreign exchange market:

-      To purchase travel money

-      To send money abroad

-      To set up single or regular payments for a purchase based abroad

-      To trade currencies

Depending on which one is needed, the person can access a range of services which are suitable.  For instance, if they require travel money then they can visit the internet and use one of many highly competitive companies who offer excellent exchange rates on cash, travellers cheques or even new travel prepaid cards. 

Exchange rates are one of the core elements to the foreign exchange market.  The rate for each currency pair is constantly fluctuating (or moving up and down) and therefore it is key that the conversion from one currency to another is done with a beneficial exchange rate!