The foreign exchange market is a currency trading market that operates across the world but in a decentralized manner. Each country's financial center acts as an anchor for forex trading between two dealers in a twenty-four-hour nonstop operation on weekdays. Each financial center rates the different currencies comparatively. Its purpose is to mainly assist international investment and trade by switching one currency to the other currency. It helps direct speculation on the difference of interest levels between 2 currencies and on the actual value of these currencies.

The foreign exchange transactions happen over the counter, meaning sellers and buyers deal with one another. There is no clearing house or central exchange. Parties to the forex market are large banking institutions, institutional investors, corporations, retail investors, central banks, foreign currency speculators, governments, and other financial institutions.

The foreign exchange market is divided into levels of access where the interbank market is at the top of such levels. Securities traders and large commercial banks transact with one another. The difference between the ask prices and bids in this particular level is not known to players outside. 53% of the overall forex volume is said to be transacted in the interbank market in which a trader, who warranties huge numbers of transactions for huge amounts, can demand a much better spread. Spread is the difference between bids and ask price. The better spread means the difference between the prices is smaller. Next to the interbank market level are the smaller banking institutions, large multinational companies, large hedge funds, and then retail forex market makers.

The economics of the foreign exchange market is impacted by market psychology, political conditions, and economic factors. In cases of unsettling international events, traders will move their assets towards currencies and investments that are considered safe like gold, Swiss franc, and the US dollar. Anticipations of the new government administration and political instability can also have profound influence on currency trading. Any political upheaval or destabilization of governments can affect the value of a country's foreign exchange negatively. Economic policies and conditions also affect currency trading. A robust national economy will have a higher currency value while a country in financial crisis will experience a drop in the price of its currency.

The most liquid financial market across the world is the currency exchange market. It is a unique market with large volume of highly liquid assets being traded yet with really low margins of profit compared to other financial markets. It is considered to be closest to perfect competition.

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