Forex trading is the act of simultaneously buying one currency while selling another primarily for the purpose of speculation. Currency values rise and fall against each other due to a number of factors including economics and geopolitics. The common goal of forex traders is to profit from these changes in the value of one currency against another by actively speculating on which way forex prices are likely to turn in the future.
One of the key elements behind the popularity of forex is the fact that forex markets are open 24-hours a day from Sunday evening through to Friday night. Trading is opening Monday morning in Wellington, New Zealand progressing to Asian trade spearheaded out of Tokyo and Singapore before moving to London and closing on Friday evening in New York. The fact that prices are available to trade 24 hours a day helps to ensure that price gapping is less and ensures that traders can take a position whenever they want.
Foreign exchange is a leveraged (or margined) product which means that you are only required to deposit a small percentage of the full value of your position to place a forex trade. This means that the potential for profit or loss from an initial capital outlay is significantly higher than in traditional trading. All forex is quoted in terms of one currency versus another. Each currency pair has a base currency and a counter currency.
Forex trades can be placed through a broker or market maker. Orders can be placed with just a few clicks and the broker then passes the order along to a partner in the Interbank Market to fill your position. When you close your trade the broker closes the position on the Interbank Market and credits your account with the loss or gain. This can all happen literally within a few seconds.
Forex prices are influenced by a multitude of different factors from international trade or investment flows to economic or political conditions. This is what makes trading forex so interesting and exciting. High market liquidity means that prices can change rapidly in response to news and short-term events creating multiple trading opportunities for retail forex traders.