Foreign exchange, or forex, is the conversion of one country's currency into another. In a free economy, a country's currency is valued according to the laws of supply and demand. In other words, a currency's value can be pegged to another country's currency, such as the U.S. dollar, or even to a basket of currencies.1 A country's currency value may also be set by the country's government.
However, many countries float their currencies freely against those of other countries, which keeps them in constant fluctuation.2
Who trades forex?
Various bank organization, institutions, retailers through what is called a BROKER. A broker is a means through which ordinary individuals trade forex.
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Governments and Central Banks. Governments and central banks, such as the European Central Bank, the Bank of England, and the Federal Reserve, are regularly involved in the forex market too.