The foreign exchange market is commonly known as forex. Put simply, it is the trading of one currency for another.

As a market, forex is one of the largest in the world. Forex traders tend to fall into two categories, those seeking to exchange their currency into another for business purposes and forex currency traders. These traders are skilled individuals who monitor market trends and speculate on the exchange rates in order to take advantage of any fluctuations in currency exchange rates.

In the Forex markets, currencies are traded against each other. The information is expressed in a standard XXX/YYY format. The XXX denotes the one unit of currency expressed in terms of the YYY ISO 4217 international three-letter code. An example of this is EUR/USD which expresses the cost of one euro in US dollars.

The foreign exchange is an over the counter market which operates 24 hours a day with trading taking place between forex brokers, individuals, bank-to-bank and broker-to-bank. The advantage of this 24 hour availability is that traders have the ability to react to events in the market as soon as they occur. The market is popular with independent speculators who can take advantage of the 24 hour trading period by trading outside of their normal working hours.

There is, as with all markets, a bid/offer spread, which explains the difference between the buying price of currency and the selling price. The bid/offer spread will vary depending on whether the trading is between, say, a market trader and wholesale customer as opposed to a broker trading with a retail customer.