## Why Should You Understand Forex Trading?

**What is Forex?** Forex (Foreign Exchange, abbreviated as Forex or FX) refers to the act of exchanging one currency for another, and forex trading is an investment method that profits from buying and selling different currencies. The core logic is simple: if you predict that a certain currency will appreciate relative to another, you can make money when that prediction comes true.

From everyday life examples, travelers exchanging currency at airports are actually participating in the forex market. For example, a traveler needs to exchange New Taiwan Dollars (NTD) for US Dollars (USD) for a trip to the United States. At the exchange window, you'll see the exchange rate—this rate reflects the relative price between two currencies. Suppose the rate is 0.034, then 10,000 NTD can be exchanged for 3,400 USD. In this process, the traveler sells NTD and buys USD, which is the most basic form of forex trading.

## How Big Is the Forex Market? Why Is It the Largest Financial Market in the World?

The forex market is a global, decentralized financial market where currencies from all countries are traded. Unlike stock or bond markets, the forex market does not close because of a specific exchange—it is truly a global market.

**Trading volume is enormous.** According to data, the daily trading volume of the forex market reaches up to $6.6 trillion. To put this into perspective, the New York Stock Exchange—the world's largest stock exchange—has a daily trading volume of about $22.4 billion. In comparison, the forex market's trading volume is 290 times larger.

However, it's important to note that this $6.6 trillion total trading volume includes all types of transactions, with the spot forex market accounting for about $2 trillion daily. If only retail trading volume is considered, it accounts for a smaller proportion—generally estimated at 3-5% of total trading volume, roughly $20 billion to $300 billion, possibly even less.

**Trading hours are completely different.** The forex market operates nearly 24 hours a day, 5 days a week, without interruption. It doesn't close at the end of a workday but follows global time zones—starting from Auckland/Wellington in New Zealand, then moving to Sydney, Singapore, Hong Kong, Tokyo, Frankfurt, London, and finally New York, before returning to New Zealand to start again. This pattern allows traders in any time zone to find suitable trading hours.

## What Exactly Is the Forex Market Trading?

Simply put: it trades in currencies themselves. But since we don't buy physical banknotes or coins, this type of trading can seem abstract.

A better way to understand it is to compare buying a currency to buying that country's "stock." The currency price directly reflects the market's view of that country's economic prospects. If you are optimistic about the future performance of the US economy, you might buy US Dollars; if the economy indeed improves, you can sell USD at a higher price for profit—this is the classic buy low, sell high investment logic. Essentially, the exchange rate of one currency relative to another represents the relative economic strength of that country compared to others.

## What Are the Major Currencies Traded?

The forex market offers a vast number of currency pairs, but beginners usually start with major currency pairs. Major currencies are those with the largest trading volume and represent the world's largest economies, including: USD (US Dollar), EUR (Euro), CAD (Canadian Dollar), GBP (British Pound), CHF (Swiss Franc), AUD (Australian Dollar), JPY (Japanese Yen), NZD (New Zealand Dollar).

**How are currency codes read?** Each currency has a three-letter code: the first two letters represent the country, and the third letter is the initial of the currency name. For example, USD: US for United States, D for Dollar, so USD is the code for US Dollar.

This three-letter currency code system was established by the International Organization for Standardization (ISO) in 1973 and is known as the ISO 4271 currency code standard. It has now become the global standard for currency codes.

**Does the US Dollar have a special status?** Yes. The USD is the most frequently traded currency worldwide and has several nicknames, such as "Buck" or "Greenback." The nickname "Greenback" originated during the US Civil War in 1861—because the back of the dollar bill was printed in a distinctive green ink, hence the name.