Having established that forex is a trade of one countryas currency for that of another countryas, it is essential to know that the world currencies do not have a fixed exchange rate and are always fluctuating and the amount of the other countryas currency that maybe receivable on a specific amount of currency for say a base currency such as the Dollar, establishes the forex or foreign exchange rate. An e.g. would be 2 Dollars being equal to 1 Sterling.

The Forex market is a non-stop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events.

The question that arises now is that why is there a need for foreign exchange? The main reason is international trade. We live in a world where there are many countries and each is unique in geography, natural resources and human capital. No single country is capable of producing domestically all the essentials to satisfy the needs of its citizens and certainly not at the lowest possible cost.

The solution then is international trade and if for e.g. USA imports microchips from Japan, then the payment that will be made to the firm in Japan will be in Japanas local currency and not in USAas. The purchaser will need to have Dollars exchanged for Yens to be able to carry out the transaction.

The investor's goal in Forex trading is to profit from foreign currency movements. In case you have a forecast that one currency would get higher to another you can exchange the second one for the first one and wait for the profit. If you are lucky to see the trades following your forecast you can make an opposite transaction and to exchange currencies back gaining the profit.

Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.

Forex trading is an attractive alternative to the stock market. Since there is no formal exchange center, trading is able to be completed 24 hours a day, seven days a week. This allows currency traders the flexibility of holding full-time jobs by day, and completing trades by night.