The trading in currencies has its roots back to the ancient times when the practice of exchanging money was actually very common. There were money-changers who used to help people in changing money and charge a commission or fee for exchange.
Today, Forex or foreign exchange is a marketplace where trading of currencies takes place. Whether people from anywhere in the world realize this fact or not, the currencies are vital to most of them. This is because all foreign businesses and trades are possible when a currency is exchanged. For example, if someone living in the US wants to purchase cheese from London, then that person or the company from which cheese is purchased will have to pay the cheese supplier from London in pounds (GBP). It means that the US importer should exchange equivalent US dollars (USD) into pounds (GBP).
The same is true while traveling to another country. An American tourist when traveling in China can’t pay in dollars because the American currency is not locally accepted in China. The tourist should exchange the dollars for local currency for covering expenses in China.
It is the need for exchanging currencies which makes the Forex market the biggest and most liquid market in the world. The total volume of Forex market is around US $2,000 billion every day and these numbers make every other financial market in the world tiny. (The traded volume is not consistent all the time and in August 2012, BIS reported that the Forex market had a trading volume of more than US $4.9 trillion every day).
A unique feature of the Forex market is the absence of any central marketplace where the foreign exchange can take place. Trading in currencies takes place electronically OTC (over-the-counter), which implies that all the transactions occur through computer networks amongst the different traders all over the world. A single centralized exchange is absent. The market is open for 24 hours on all weekdays except for Friday because on Friday, the Forex market is active for half day only and on weekends, it remains closed. The major financial centers for currency trading are New York, London, Zurich, Tokyo, Frankfurt, Singapore, Paris, Hong Kong and Sydney. Trading in the Forex market can be done anytime of the day because when the trading session in US ends, the Forex market starts anew in Hong Kong and Tokyo. This is why this market remains very active in any time of the day.