Glossary entry
Foreign exchange trading exchanges exposure between currencies, usually described through a currency pair. Activity serves commercial payments, hedging, investment, and speculation. Spot transactions, forwards, futures, and other derivatives have different settlement and risk structures. A retail leveraged contract can differ materially from exchanging bank balances, even when both reference the same exchange rate.
Illustrative example
An exporter converts foreign revenue into domestic currency, while another participant uses a forward to reduce uncertainty about a future payment in that foreign currency.
What to consider
Leverage, counterparty terms, and exchange-rate movements can produce substantial losses. Confirm the product structure and regulated entity before treating a quote as a cash exchange.