FX or Forex Trading is the name given to trading one currency against another. When you go on holiday for example, you may sell your Sterling and buy US Dollars (if you are visiting the USA). For example you may find 500 pounds will buy you US$800 at the bank on a given day. Then the following day the rate has moved and you are now receiving fewer dollars in return. This is the basic concept of FX trading (exchange rates are moving constantly).
All Foreign Exchange rates are quoted in pairs. For example if we were selling Sterling (GBP) and buying Dollars (USD), this would be written in shorthand as GBPUSD. In this example GBP is referred to as the base currency, and USD is referred to as the counter currency.
The price at which this hypothetical trade would be carried out is the exchange rate between the two currencies. The final factor to consider is the amount of currency you wish to buy or sell. In the world of FX trading, this is referred to as the lot size. One lot is the equivalent to 100,000 of the base currency. You can buy or sell in lots or in fractions of lots, for example mini lots and micro lots. This is a very important advantage of trading. This means you can speculate on a rise OR fall in the currency pair.
One other advantage of FX trading is that you do not have to pay the full cost of the trade upfront. Forex is traded on leverage. If you are trading on 1:100 leverage this means you will typically pay 1% of the value of your trade as a deposit; thus freeing up your funds.