The Forex market is the most actively traded market in financial markets, with more than $5 trillion being every day. Traders look to predict the future direction of currencies by taking either a long or a short position depending on if they believe the value of that currency will go down or up.
When trading on the Forex market most currencies come in pairs, for example EUR/USD (euro verses the US dollar) the movement in the exchange rate between these two currencies (pair) is what a trader will speculate on and hope to make a profit.
For example: A trader believes that the EUR is going to strengthen against the dollar and will therefore buy EUR. By buying EUR the trader is also at the same time selling USD on expectations that the exchange price will rise in value. If the trader has predicted correctly a traders profit will rise in line with the increase in the exchange price. When the trader wishes to take their profit (if they have predicted correctly) they will close out their position by selling the EUR. Should the trader have predicted incorrectly in this case they would sell for a loss.
There are multiple ways in which to trade on the Foreign exchange markets: