The most basic reason for the existence of the foreign exchange market is the need for currency exchange. Currency exchange is an everyday occurrence in modern life, whether it be for a business that is purchasing goods from another country, for a tourist who is changing money with the intention of going on vacation abroad, or for an investment that is wagering on the direction of economic trends.

At each given moment, the value of currencies is coupled with one another. When one discusses the worth of one unit of one currency in connection with another currency, they are referring to a currency exchange rate. For instance, the pair EUR/USD provides a trader with information on the amount of United States dollars that can be purchased with one euro. In the event that the value of this pair goes up, the euro will have increased in comparison to the dollar. Should it fall, the euro will become less powerful than it was before.

On the surface, these differences in value, which are often indicated in decimal units called "pips," may seem to be little; yet, in the foreign exchange market, even the slightest shift may have significant implications, particularly when big amounts of money are involved. In contrast to stock markets, which typically have central exchanges such as the London Stock Currency or the New York Stock Exchange, the foreign currency market operates over the counter.

Now, rather than taking place via a centralized exchange, transactions are conducted directly between the individuals involved, often using electronic trading networks and over the phone. Because the foreign exchange market is distributed and open five days a week, twenty-four hours a day, market participants from all over the world are able to trade at almost any time.