The Foreign Exchange Markets, where people buy and sell foreign currency, also referred to as the "Forex" or "FX" market, is the largest financial market in the world, 30 times larger than the combined volume of all US equity markets.
Currencies are traded in pairs, for example Euro/US Dollar or US Dollar/Japanese Yen.
Foreign money held by a government to support its own currency. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign into their domestic currency. The other 95% is trading for profit, or speculation.
For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors". Today, more than 85% of all daily transactions involves trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
Forex trading begins each day in Sydney, and moves around the blobe as the business day begin in each financial center, first to Tokyo, London, and New York,. It's a 24-hour market, and investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.
The Forex market is considered an over the counter (OTC) or interbank market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network.