Foreign exchange (forex) involves buying one currency while selling another at the same time to make money on changes in exchange rates. Traders try to profit by speculating on the value currencies are likely to have in the future. The forex market is considered the largest, most liquid market in the world, but is also complex and highly volatile. Different factors affect the forex market, including political, social, and economic events all around the world.
In some cases, forex requires large minimum trades and often involves borrowing money, called leveraging, to invest. Leveraging only works when the rate of return is higher than the interest rate on the debt, and it can be very risky because you may be required to put up more capital if exchange rates don’t move the way you expect them to. Read more about the risks of leveraging in Borrowing to Invest.
It’s important to understand that forex trading is a zero-sum transaction where one party profits and the other loses. Even knowledgeable and experienced investors can realize substantial losses when and if market conditions change.
Forex trading is regulated as trading in either a security or a derivative, and its regulation varies depending on provincial legislation. Either way, firms or individuals seeking to offer forex trading services must be appropriately registered in the province in which they intend to work and must also be a member of the Investment Industry Regulatory Organization of Canada.