Foreign Exchange (Forex or FX) refers to the global marketplace where the trading of currencies occurs. It is the largest financial market in the world, operating on a decentralized system of interconnected financial entities including banks, brokers, and trading institutions. Forex operates 24 hours a day due to the global time zone differences, making it a highly dynamic and liquid market.

Currencies within Forex markets are quoted as pairs, such as EUR/USD, indicating the ratio between two currencies. An individual or organization needing to exchange currencies, for example for international trade, investment, or travel, would participate in Forex transactions. For instance, a company based in the United States needing to pay a German supplier in euros would engage in a Forex transaction to convert USD to EUR.

Also, Forex is utilized for hedging purposes, reducing exchange rate risk in international transactions. As an integral part of global finance, the foreign exchange market's functioning is crucial for international trade and economic stability.