What Is Forex?

History

Forex, or FX, is a shortened term that describes the Foreign Exchange Market, a marketplace where the world's various currencies are traded. It is an interbank market which was created in 1971 when international trade transitioned from fixed to floating exchange rates. As a result of its incredible volume and fluidity, the FX market has become the largest and most significant financial market in the world.
Here are some unique characteristics that are the source of its success:

• Forex markets operate 24 hours a day
• Superior liquidity: the daily turnover of the FX market – over 4 Trillion Dollars – makes it easy to trade most currencies instantaneously
• You can profit from rising or falling markets
• You can benefit from leveraged trading with low margin requirements
• There are standard instruments available to help you control risk exposure
• Excellent Transparency: the Forex Market is transparent… you just need to keep yourself informed

The Exchange Rate

Forex plays the indispensable role of determining global exchange rates. The exchange rate is the number of units of one nation’s currency that must be exchanged in order to acquire one unit of another nation’s currency. A market exchange rate between two currencies is determined by the interaction of the official and private participants in the foreign exchange rate market.

Market Participants

The main participants in the Forex market are: central banks, commercial banks, financial institutions, hedge funds, commercial companies and individual investors. The main reasons they participate in the Forex market are:

1. Profit from fluctuations in currency pairs (speculating)
2. Protection from fluctuating currency pairs which is derived from trading goods and services (Hedging)

With technological development, the World Wide Web has become a great trading facilitator, as it can provide individual investors and traders with access to all the latest Forex news, technology and tools.

Source: http://www.markets.com/education/forex-education/what-is-forex.html