The forex market comprises two main activities: trading facilitating economic transactions and speculative trading. For companies and other entities operating in international markets, purchasing and selling foreign currencies are a must. Getting your funds back home or purchasing goods abroad is a key forex market use case.
Traders also look to make money with long-term opportunities such as fluctuating interest rates. Economic events and geopolitics also cause serious fluctuations over time in the currency markets. By purchasing a currency now and holding, there’s profit to be made long-term. You can also agree on exchange rates years in advance with futures contracts in a bet for or against the market.
Forex trading can be challenging for smaller users. Without borrowing or having a high amount of initial capital, arbitrage and short-term trading become much more difficult. This aspect has led to international banks and financial institutions providing most of the volume we see in the foreign exchange market.