The foreign exchange market (Currency, Forex or FX) market is where currency trading takes place.  It is where banks and other official institutions facilitate the buying and selling of foreign currencies.  FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another.

Today, the FX 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 foreign exchange market is unique because of

its trading volumes;
the extreme liquidity of the market;
its geographical dispersion;
its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday);
the variety of factors that affect exchange rates;
the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes);
the use of leverage.

The average daily volume in the global foreign exchange and related markets is continuously growing.  Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements.  Since then, the market has continued to grow.  According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.

In 2006, retail traders constituted over 2% of the whole FX market and this figure is estimated to be growing year on year.  It is easy for the public to now access FX brokers who offer tight spreads in this very liquid market.

The currency market has a language of its own.  Click here to understand some of the commonly used terms