Want to enter the world's largest financial market? First, understand forex terminology and trading logic.

What makes the foreign exchange market so attractive? Simply put: a daily trading volume of $6.6 trillion worldwide, 24-hour nonstop trading mechanism, and a lower entry barrier compared to stocks. If you want to participate in this massive financial market, first you need to understand what foreign exchange actually is.

What is Foreign Exchange in English? It’s essentially currency trading to profit from exchange rate differences

Foreign Exchange (Forex or FX) is straightforward — exchanging one currency for another to earn from the difference in exchange rates.

Imagine a scenario: you plan to travel to the United States. At the airport exchange counter, you see a screen showing real-time exchange rates for various currencies. For example, the exchange rate for New Taiwan Dollars (NTD) to US Dollars (USD) is 1:0.034. You exchange 10,000 NTD for 3,400 USD. This process seems simple, but in reality, you are already participating in the foreign exchange market — selling NTD, buying USD, and the difference is your profit (or loss).

But the difference between forex trading and currency exchange for travel is: traders are not exchanging currency for actual use, but purely speculating based on predictions of exchange rate movements. Exchange rates fluctuate every second, influenced by factors like national economic strength, fiscal policies, international relations, and more. Most forex traders aim to seize these fluctuations, buying low and selling high.

Why is the forex market so special?

Trading volume is unimaginably huge. Daily trading reaches $6.6 trillion, far surpassing other global financial markets. For comparison, the New York Stock Exchange (one of the largest stock exchanges in the world) has a daily trading volume of about $22.4 billion — the forex market is 290 times that.

What does this mean? Extremely high liquidity. Under normal market conditions, you can almost instantly complete any size of buy or sell transaction without worrying about finding a counterparty.

Trading is almost open year-round. The forex market operates 24 hours a day, 5 days a week, only closing on weekends. Trading begins in New Zealand, passes through Sydney, Hong Kong, Tokyo, Frankfurt, London, and finally closes in New York, then repeats. In contrast, stock markets are only open during working hours — for example, the US stock market opens at 9:30 AM and closes at 4:00 PM.

What is actually traded in the forex market?

Simply put — money. But you’re not buying physical currency; you’re betting on the economic prospects of a country.

Think of it this way: buying a currency = buying that country’s “economic stock”. The exchange rate reflects the market’s judgment of that country’s current and future economic health.

Suppose you are optimistic about the US economy’s development prospects, expecting GDP growth to accelerate and corporate profits to increase. Relative to other countries, the US dollar should appreciate. You can buy USD (against other currencies), wait for US economic data to confirm positive trends, and when the USD appreciates, sell for profit. Conversely, if you are bearish on a currency, you can profit from shorting.

Which currency pairs should beginners trade?

Major pairs are the best choice for forex newcomers — these currencies have the highest trading volume, liquidity, and the lowest spreads (buy-sell differences).

Major currencies include: USD, EUR, GBP, JPY, CAD, CHF, AUD, NZD.

Each currency has an internationally standardized three-letter code (ISO 4217): the first two letters represent the country, and the third letter indicates the currency name. For example, USD = US(United States) + D(Dollar). This coding system has been in use since 1973 and is globally recognized.

Because the US dollar is traded most frequently, it also has a nickname — “Greenback,” originating from the green ink on the back of US banknotes during the Civil War in 1861.

Practical advantages of forex trading

Extremely low costs. Unlike stock trading, which involves commissions and fees, forex trading has no commission. Brokers mainly profit from the spread (the difference between bid and ask prices). Under normal conditions, spreads are below 0.1%, and for large trades, even as low as 0.07%.

No minimum trading volume restrictions. Futures markets have standard contracts (e.g., 5,000 ounces of silver per lot), but forex allows trading as small as 1,000 units of currency. Beginners can start with very small amounts.

Leverage amplifies profits. This is a double-edged sword. Forex brokers typically offer 50:1 leverage — with $50 margin, you can control a $2,500 position. This magnifies gains but also increases the risk of losses.

No restrictions on short selling. Whether the market is rising or falling, you can trade. Compared to stocks, which have many restrictions on shorting, forex treats bullish and bearish positions equally.

Less influence from analysts. Stock prices are often affected by company earnings reports and analyst forecasts, but forex is a necessity for global banks, with a value in the hundreds of billions of dollars, making individual analyst opinions negligible.

Why is forex better than stocks and futures?

Compared to stock markets:

• Forex operates 24 hours, stocks only during specific hours
• Forex involves only about 7 major currency pairs, much easier to analyze than thousands of stocks
• Forex liquidity far exceeds stocks
• Forex has no restrictions on short selling, trading is more flexible

Compared to futures markets:

• Daily forex volume is $6.6 trillion, futures only about $30 billion
• Forex trades 24/7, futures liquidity drops significantly outside trading hours
• Forex execution is fast, with high price certainty
• Forex risk management is stricter (automatic position closing when losses exceed margin), while futures can result in debt

Final reminder

The forex market is indeed the largest investment market globally, with high transparency and low entry costs, but this does not mean it’s low risk. Leverage, 24-hour volatility, and global events can quickly magnify losses.

Before trading for real, it’s essential to fully understand forex terminology, market mechanisms, and risk management.