Basics of Forex at a Glance
Forex is the truncated form of The Foreign Exchange Market. It's also known as the currency trading market or just FX. A market where participants buy-sell and exchange currencies. Forex market facilitates the trade of around 4 trillion dollars worth of transactions every day. There is no central location to operate its price regulations. Instead, money is traded through a network of international dealers and brokers. Price quotes are controlled by anonymous market markets (arguably the major retail banks).
Businesses use the forex market when they're buying products from other countries. For example, suppose a US company wants to buy a car engine from the UK. The engine is transferred from the UK to the US, and the US company has to convert U.S. dollars to pounds to pay for the good. The US company uses the forex market to convert dollars to pounds at the current exchange rate. Sometimes they choose to work with the fixed rate to avoid the fluctuations. Sometimes they go for the volatility to hunt some more profits or maybe losses. It depends on their internal monetary schemes. This kind of strategy is referred to the options market.
Speculators will attempt to buy currencies, with the hope of an increase in value and sell when they believe it will decrease in value. Unlike a stock market, currency valuation is relative to other currencies. That's why the price is given in relation to a second currency (for example EUR/USD). When traders buy a currency, they eventually sell another one. So it step-ups the works for a speculator. Unlike any other capital markets, simply an eye after one side won't be enough here. There are many other factors that contribute to a change in exchange rate, including monetary policy, political stability, interest rates, imports and exports to name a few. Even the volatility in any other markets around affects it ultimately. Making it much harder to predict where the market is going next.