Known as Forex or the FX market, the foreign exchange market is the world's most traded market, with a daily turnover of trillions of US dollars. In simple terms, the global financial market allows you to trade currencies.
In the Forex market, If you predict that one currency will be stronger than the other and you are correct, then you make a profit.
Throughout the world, Forex is traded 24 hours a day, 5 days a week by banks, institutions, and individual traders. The forex market does not close daily after the business hours like the stock or bond markets. Trading simply shifts to different financial centers around the world. In contrast to other financial markets, Forex does not have a centralized marketplace. A currency is traded over the counter on whatever market is open at the time.
You probably exchanged your money into the foreign currency of your destination at the airport if you've ever traveled abroad. There is usually a giant screen displaying different exchange rates for different countries. Currency exchange rates are the relative prices between two foreign currencies.
The moment you exchange your currency for the local currency, you've essentially participated in the forex market!
Only a tiny percentage of foreign currency transactions involve international trade and tourism, like the airport example above. Instead, most currency transactions that happen in the global foreign exchange market are for speculative reasons. A currency trader (also called a currency speculator) buys currencies to sell at a higher price later.
In summary, the foreign exchange market is where different currencies are traded, and you can make money by speculating how the prices will change.