The worldwide Foreign Exchange (or FOREX, or FX) market sees a huge $1.2 trillion daily turnover. A very small part of the market is made up by governments and companies meeting their foreign currency needs. The much larger part consists of speculation by professionals from banks and funds. Nowadays these professionals are joined by a growing number of individuals trading online.
A currency trade is made by selling a currency, and using the funds to simultaneously buy another. The currency combination of the trade is named a cross (for example, the US Dollar/Japanese Yen, or USDJPY). The majority of trades are spot trades, so called because they are settled immediately.
You trade Forex on margin, this means a small deposit covers a much larger position. Typically the margin would be 1%. So a change of 0.5% in the value of your position would result in a 50% profit or loss on your deposit.
No commision is charged on your trade, but all fx trading brokers quote a spread, typically 3-5 points eg USD/GBP: 1.9990-1.9993, meaning that your can sell $ against the £ at 1.9990, and buy at 1.9993. If, as many think, the market is random, and there is no way to predict the future, the broker collecting the spreads is the only guaranteed overall winner.
Be careful when choosing a broker. For example some brokers offer superior trading software with more efficient execution, while others may have a poor reputation because of employing various methods to their own advantage.
FX Trading can be very complicated, with intricate number-crunching systems and chart analysis tools aimed at second-guessing the market. But many of these tools are based on past results, and often the past is of absolutely no help when it comes to foretelling the future.