The Foreign Exchange market is known by several names including "Forex," “FX," the "Forex spot market," or "Spot FX." A "spot" market refers to any market that deals in the current price of a security.

No matter which name you use to describe the Forex marekt, it is the largest financial market in on Earth. The daily volume for the Forex market exceeds $2 trillion a day.

Compare that to the average daily volume of about $25 billion that the New York Stock Exchange trades, and you will quickly realize how absolutely tremendous the Foreign Exchange really is. It literally equates to more than three times the total dollar value of both the stock and futures markets combined!

Forex trading involves the simultaneous purchase of one currency and the sale of a second currency. These currency transactions are processed through a broker or dealer, and are traded in pairs. Popular currency pairs include the Euro and US dollar (EUR/USD), as well as the British Pound and Japanese Yen (GBP/JPY).

Currency trading can be confusing for the uninitiated. You are not purchasing stock, or a futures contract. Instead, the transaction involves swapping one currency for another with the expectation that the valuation of the two will diverge. One way to conceptualize this is to think of buying a currency as the purchase of shares in a particular country.

When you buy a country's currency, you are in effect purchasing a piece of that country's economy because the value of a country's currency is a direct reflection of what the market, as a whole, perceives as the current and future health of the national economy.

Generally, the exchange rate of a currency, versus other currencies, is a reflection of the one nation's economy compared to the other country's economy. As one nation struggles, it's currency will weaken in comparison to those nations that continue to see sound economic growth. So, as global economic conditions change there will be corresponding changes in the value of one nation's currency as compared to the others.

From a fundamental perspective, a currency trader seeks out opportunities to exploit the rise of stronger currencies versus weaker currencies in a given pair. He will do this by buying the stronger currency, while selling the weaker component. As the discrepancy of those two currencies widens, a profit is realized.