Forex Trading Market Guide: Why Choose This the World's Largest Financial Market?

The Core Differences Between Forex Trading and Other Investment Methods

Before making investment decisions, many people ask: why choose forex instead of stocks or futures? The answer is actually quite clear.

The forex market has a daily trading volume of up to $6.6 trillion, far surpassing the stock market. Taking the world’s largest stock exchange, the New York Stock Exchange, as an example, its daily trading volume is only about $22.4 billion, making the gap enormous by comparison. More notably, forex trading offers 24-hour, around-the-clock service—from the opening of the Australian market on Monday morning until the closing of the New York market on Friday afternoon, trading never stops. In contrast, stock markets are limited by fixed trading hours (usually from 9:30 AM to 4:00 PM Eastern Time in the US).

The futures market’s daily trading volume is only $30 billion, with liquidity far less than forex. Additionally, forex trading pairs have no special restrictions on short positions; traders can find opportunities whether the market is rising or falling. Conversely, stock markets often experience sharp fluctuations due to analyst opinions or financial reports, and are more affected by market sentiment.

What Exactly Is Forex? An In-Depth Understanding of Basic Concepts

Forex, short for Foreign Exchange, refers to the act of exchanging one currency for another. Forex trading is an investment activity that profits from buying and selling different currencies based on exchange rate fluctuations.

For example: Suppose you plan to travel from Taiwan to the US and need to exchange New Taiwan Dollars (NTD) for US Dollars (USD) at the airport currency exchange. When you approach the counter, the screen displays various currency exchange rates—that is, the relative prices of two currencies. If the exchange rate is 0.034 NTD per USD, you can exchange 10,000 NTD for 340 USD. At this moment, you are participating in the forex market—selling NTD and buying USD.

Exchange rates are not fixed; they fluctuate every second, influenced by factors such as national economic strength, fiscal policies, and international relations. Forex traders aim to analyze these fluctuations to determine whether a currency will appreciate or depreciate, thereby earning profits.

How Does the Forex Market Operate? A Global Decentralized Trading Mechanism

The forex market is the largest financial market in the world and is a global, decentralized market. It has no physical exchange but operates through a network of banks, brokers, and investors worldwide. Currencies from all over the world are traded here 24 hours a day, five days a week.

What makes this market unique is its seamless global operation. Trading begins in Auckland/Wellington, New Zealand, then shifts to Sydney, Singapore, Hong Kong, Tokyo, Frankfurt, London, and finally New York, before restarting in New Zealand. This relay ensures continuous liquidity in the market.

It is important to note that while the total trading volume of $6.6 trillion covers the entire forex market, the spot forex market’s daily trading volume is only about $2 trillion. Retail traders’ volume is smaller, estimated to account for about 3-5% of total trading volume, roughly $20-30 billion, and possibly even less.

Investment Targets in Forex Trading: Currency Pairs and Major Currencies

The target of forex trading is simple—currencies. Although we do not purchase physical currencies, we can view it as investing in the economic prospects of a country. The price of a currency generally reflects the market’s assessment of that country’s current and future economic conditions. If you expect the US economy to improve, you can buy USD; if not, you can sell. The difference between buying low and selling high is your profit.

Major currencies refer to the currencies with the highest trading volume, representing the world’s main economies, including the US dollar (USD), euro (EUR), British pound (GBP), Japanese yen (JPY), Swiss franc (CHF), Canadian dollar (CAD), Australian dollar (AUD), and New Zealand dollar (NZD). For beginners, trading these mainstream currency pairs offers better liquidity and lower spreads.

Currency codes consist of three letters, with the first two representing the country name and the third representing the currency. For example, in USD, US stands for the United States, and D stands for Dollar. This standardized system was established by the International Organization for Standardization (ISO) in 1973 and is called ISO 4271 currency codes.

Why Choose Forex Trading? An Overview of Core Advantages

Clear cost advantages: Forex trading does not require paying commissions. Most retail forex brokers profit from the bid-ask spread, which is usually below 0.1% under normal conditions. For large-volume trades, spreads can even be reduced to 0.07%, far lower than other markets.

Flexible entry thresholds: Unlike futures markets (e.g., silver futures contracts fixed at 5,000 ounces), forex traders can choose their trading size freely. Many brokers allow minimum trades of just 1,000 currency units, greatly lowering the barrier to entry.

Leverage amplifies profits: Forex trading supports leverage, allowing traders to control large positions with a small amount of capital. For example, a 50:1 leverage means that with $50 in margin, you can control a $2,500 position; with $500, you can control a $25,000 position. This significantly expands profit potential.

Exceptional liquidity: The daily trading volume of $6.6 trillion makes the forex market the most liquid, enabling traders to execute buy and sell orders instantly under normal market conditions, with prices being reliable and execution fast.

Robust risk management: When losses exceed the margin requirement, trading platforms issue margin calls or automatically close positions, making risk more controllable. This differs from futures markets, where traders’ losses can exceed their account balance.

Summary of Practical Advantages of Forex Trading

Compared to stocks, futures, and other investment tools, forex trading stands out due to its enormous market size, 24-hour trading mechanism, low transaction costs, and flexible leverage options, making it an effective investment channel for global investors. Whether you are a professional trader or a part-time investor, you can find a suitable trading approach in this transparent, low-cost market. Now, with the core knowledge of forex trading in hand, you can start exploring this largest financial market in the world.