Forex transactions usually involve one person or group purchasing a quantity of one currency in exchange for paying a quantity of another. This exchange market started evolving during the 1970s when countries the world over gradually switched to floating exchange rate from their fixed rate systems.

Today, the market is one of the largest and most liquid financial markets in the world and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing.

The purpose of the Forex market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.

It is now possible to trade forex or currencies around the clock with hundreds of foreign exchange brokers through trading platforms. The reason that the business is so profitable is because in many cases brokers are taking the opposite side of the trade and therefore turning client capital directly into broker profit as the average account loses money. Some brokers provide a matching service, charging a commission instead of taking the opposite site of the trade and "netting the spread", as it is referred to within the forex industry.

Recently forex brokers have become increasingly regulated with minimum capital requirements of US$20m now applying in the US, as well as stringent requirements now in Germany and the United Kingdom. Switzerland now requires forex brokers to become a bank before conducting  brokerage business.

According to the October 2008 issue of e-Forex Magazine, the retail FX market is seeing continued explosive growth despite, and perhaps because of, losses in other markets like global equities in 2008.

Most Forex trading is speculative, with only a low percentage of market activity representing governments' and companies' fundamental currency conversion needs. Forex is not like trading the stock market by a central exchange but by over the counter marketing.   The trade takes place between the two counterparts directly which is necessary to make a trade.  It can be carried out over the telephone or electronic networks all over the world.    

The main centres for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centres means that the Forex market is a 24-hour market.

Countries that have immature, potentially unstable economies usually use a pegged system. Developing nations can use this system to prevent out-of control-inflation. The system can backfire, however, if the real world market value of the currency is not reflected by the pegged rate. In that case, a black market may spring up, where the currency will be traded at its market value, disregarding the government's peg.

When people realize that their currency isn't worth as much as the pegged rate indicates, they may rush to exchange their money for other, more stable currencies. This can lead to economic disaster, since the sudden flood of currency in world markets drives the exchange rate very low. So if a country doesn't take good care of their pegged rate, they may find themselves with worthless currency.

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