Foreign exchange, also known as Forex or FX, is the purchase of one currency and the sale of another currency. For example you may buy US dollars and sell Euros or you buy UK Pounds Sterling and sell Japanese Yen. Forex trading is the largest and most liquid financial market in the world and is growing rapidly.

About 5% of all currency transactions involves governments, central banks or corporates, with the remaining 95% currency transactions being undertaken for speculation and trade. Companies will also buy and sell foreign currency in order to hedge against exchange rate risks, and to protect their financial investments.

Approximately 85% of the trading is done in only US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. The US Dollar is the most recognisable foreign currency even in countries like Afghanistan, Iraq and Vietnam. Other currencies may not be as liquid, possibly due to exchange controls or political instability, or may be prone to inflation.

The currency trading market is a true 24-hour market with trading being passed from East to West through the trading day. The market opens first in the financial centres of Sydney, moving to Tokyo, London and New York in that sequence through the day. Investors and speculators can then easily respond to the ever-changing situations and can buy and sell currencies simultaneously if they so wish.

There are again various factors which affect the currency markets, and whole areas of scientific analysis have been developed to study the effect of these, such as Technical Analysis and Fundamental Analysis.

Technical Analysis refers to reading, summarising and analysing data based on the data that is generated by the markets prices and charts. Fundamental Analysis refers to the factors which influence the overall market economy, and in turn how these affect the currency trading markets. Currency markets can be extremely volatile and unpredictable and can move very fast. This, coupled with the fact that investors typically trade currencies on a highly leveraged basis means that currency trading has the potential for high returns but also for large losses.