Foreign Exchange (FX) trading is the buying and selling of the different kinds of money in the world.  It is the market where your dollars are sold for a certain amount of another currency that is based on what the buyer will pay and you will accept.

*The FOREX market is the largest market in the world with daily reported volume of 2.1 trillion making it one of the most exciting markets for trading. Currency Traders buy and sell currencies with the hope of making a profit when the value of the currencies changes in their favor, whether from market news or events that take place in the world. Unlike other financial markets, the forex market has no physical location or central exchange. It is an over-the-counter market where buyers and sellers including banks, corporations, and private investors conduct business.
Currency trading takes place in financial trading centers all over the world, including New York, London, and Tokyo creating one cohesive, international market. The huge number and diversity of players involved make it difficult for even governments to control the direction of the market.
The unmatched liquidity and around-the-clock global activity make forex the ideal market for active traders. Traditionally the forex market was only available to larger entities trading currencies for commercial and investment purposes through banks.
Now trading platforms, such as the FX Trading Station, allow smaller financial institutions and retail investors access to a similar level of liquidity as the major foreign exchange banks, by offering a gateway to the primary (Interbank) market.

 

How an FX Trade Works:

Forex Trading is the simultaneous buying of one currency, and selling of another currency. To best understand how an FX trade works, let’s consider an example for EUR/USD:

Trader's Action	Euros	US Dollars
Forex Trader purchases 100,000 euros in the beginning of 2001 at the EUR/USD rate was .9600.	+100,000	-96,000
In May of 2003 the trader exchanges his 100,000 euro back into US dollar at the market rate of 1.1800	-100,000	+118,000
In this example, the trader earned a gross profit of $22,000USD	0	+22,000

* Source:  FXTSP.COM