Forex (FX), also known as foreign exchange, is the world’s largest and most liquid financial market where currencies are bought and sold.
If you have travelled abroad, you may have made a physical foreign exchange trade by buying the currency of the country that you are visiting. For example, you might have sold euros to buy pounds for a trip to the UK.
The difference with online forex market is that you don’t buy or sell physical currencies. You buy or sell the movement in currencies with the aim to profit from the appreciation or depreciation of one currency over the other.
When you to decide to buy or sell, you speculate on the future price of the currencies.
Take for example the EUR/USD pair.
The euro is the base currency, that is the currency you choose to buy and the dollar serves as the counter currency which you choose to sell. Let’s assume that due to market fluctuation, the value of the euro increases over the dollar. You then decide to close the deal and sell the euro. The difference increase in the euro rate means a profit for your deal.
The value of a currency on the Forex market is determined by demand. How much demand there is for Polish Zloty, Swiss Franc, or Japanese Yen will either increase or decrease its worth in relation to other currencies.