Recently, while studying financial markets, I found that many people are actually quite unfamiliar with what foreign exchange is. Simply put, it is an investment approach that involves exchanging one currency for another to profit from the spread; in English, it is called Foreign Exchange or Forex.

For example, if you travel to the United States, you need to exchange New Taiwan Dollars for US dollars—this is the most basic form of foreign exchange trading. Exchange rates fluctuate every second, depending on factors such as each country’s economic conditions, policies, and international relations. Traders make profits from these fluctuations by analyzing exchange-rate trends.

When it comes to the scale of the foreign exchange market, the numbers are truly astonishing. Daily trading volume reaches 6.6 trillion US dollars. Compare that to the New York Stock Exchange’s 22.4 billion US dollars, and you can see just how enormous the forex market is. However, retail traders account for a relatively small share of trading volume—estimated at only 3–5%, or roughly 20–300 billion US dollars.

This market also has a feature—almost full-time availability. It operates 5 days a week, 24 hours a day. Trading starts in Auckland, New Zealand, then moves sequentially to Sydney, Singapore, Tokyo, London, and New York, before beginning again. This gives traders a high degree of flexibility.

Foreign exchange trading is straightforward—it’s about currencies. You can think of buying a particular currency as buying that country’s “stock.” If you are optimistic about the US economy, you buy US dollars; if the economic performance matches expectations, you sell at a profit. Currency prices directly reflect the market’s view of a country’s current economic situation and its future outlook.

The main currency pairs include US dollar, euro, British pound, Japanese yen, Swiss franc, Canadian dollar, Australian dollar, and New Zealand dollar. Currency codes are three letters: the first two represent the country, and the third is the initial of the currency name. For example, USD is the US Dollar. This system is based on the ISO 4217 standard established by the International Organization for Standardization in 1973.

Why is the question of what foreign exchange is worth deeper understanding? Because it genuinely has many advantages. First, trading costs are low—there are no commissions, and the bid-ask spread is usually below 0.1%. Second, there are no specific requirements for trading size; the minimum can be as low as 1000 units of currency. Third, 24-hour trading is convenient—you can operate anytime, anywhere.

Leverage is another major advantage. With a 50 US dollars margin, you can control a position of 2500 US dollars, greatly expanding your profit potential. And with the market’s extremely strong liquidity, buy and sell orders can be executed instantly.

Compared with the stock market, foreign exchange has clear advantages. Stock trading only takes place during exchange hours, while foreign exchange is open 24 hours a day. The New York Stock Exchange has only 2800 stocks, NASDAQ has 3300 companies, whereas the main forex currency pairs are just 7, making it easier to focus. Liquidity is also stronger, and there are no short-selling restrictions—whether you are bullish or bearish, you have opportunities.

Compared with the futures market, forex daily trading volume of 6.6 trillion US dollars far exceeds the futures market’s 30 billion US dollars. Forex is a 24-hour market, while futures are not. Execution is faster, and price certainty is higher. Risk management is also more robust: losses that exceed margin requirements will be automatically topped up or liquidated, so you won’t end up owing money the way you might with futures.

In summary, what is foreign exchange? It is the world’s largest financial market, characterized by high transparency and low entry costs—making it an effective investment choice for investors around the world.