According to the definition given in The Economist’s guide to Financial Market, forex or forex exchange is a worldwide decentralization of the financial market for trading currencies. Here, financial centers across the globe act as anchors of trading between different types of buyers and sellers, and work 24-hour a day, 5 days a week.
To trade forex online, buyers and sellers exchange goods and services 24 hours a day worldwide. These transactions require payments in non-domestic currencies. Let’s understand this first. Suppose- a United Kingdom-based company purchases widget from a Mexican Company. In this particular transaction, one of two things will happen. The UK Company may make the payment in Mexican Pesos according the terms defined in the contract. It would require a conversion of dollars in Pesos to make the payment. Or, the UK company can make the payment in Dollars, and the Mexican company would then exchange the Dollars to Pesos itself. Either ways, some transactions will happens which takes Dollars and exchanges them for pesos.
The forex market defines an exchange rate between the US dollar and the Mexican Pesos to facilitate the transaction. It is a 24-hour over-the-counter financial market, where forex trading starts in Sydney, and moves around the worlds as the business day starts, first to Tokyo, London and then New York.