## Why is the foreign exchange market called the most profitable financial market in the world?

**Foreign Exchange** (Forex or FX) sounds complicated, but it is essentially the act of exchanging one currency for another. However, once you understand the English terminology of Forex and how its market operates, you'll realize why it trades a daily volume of $6.6 trillion, far surpassing other financial markets.

## How huge is the scale of the Forex market?

Using the New York Stock Exchange as a reference point, the world's most well-known stock exchange has a daily trading volume of about $22.4 billion. In comparison, the Forex market's daily trading volume is **294 times** that. Even excluding transactions between financial institutions, the spot Forex market still sees a daily turnover of $20 trillion.

How involved are retail investors in the Forex market? It is estimated they account for about 3-5% of total trading volume, roughly $200-300 billion, but this figure may be underestimated.

## What exactly is traded in Forex?

Many people mistakenly think Forex trading involves exchanging real currencies, but that's not the case. You are actually trading expectations about a country's economic health.

For example, if you are optimistic about the US economy and expect the dollar to appreciate, you buy dollars; conversely, you sell dollars. This is similar to buying stock in a company—the currency price directly reflects the market's judgment of that country's current economy and future prospects. The exchange rate of one currency against another essentially embodies the relative competitiveness of two economies.

## What are the main currencies in the world?

The currencies with the largest trading volume in the Forex market are called "major currencies," representing the world's largest economies:

**USD (US Dollar)**, **EUR (Euro)**, **GBP (British Pound)**, **JPY (Japanese Yen)**, **CAD (Canadian Dollar)**, **AUD (Australian Dollar)**, **CHF (Swiss Franc)**, **NZD (New Zealand Dollar)**

Currency codes follow the ISO 4271 standard, consisting of three letters— the first two represent the country, and the third represents the currency's initial letter. For example, USD: US is the abbreviation for United States, D for Dollar, so the code is USD.

## Forex trading vs stock trading: which is better?

**Number of trading assets:** The stock market has thousands of stocks (about 2,800 on NYSE and around 3,300 on NASDAQ), but the most active major currency pairs in Forex are only 7. This means Forex investors have more concentrated choices, making in-depth analysis easier.

**Trading hours:** Stock trading is limited to exchange hours (e.g., US stocks from 9:30 AM to 4:00 PM EST), while the Forex market operates 24/5. It starts from Wellington, New Zealand, then moves sequentially to Sydney, Singapore, Hong Kong, Tokyo, Frankfurt, London, and finally closes in New York.

**Liquidity and transaction certainty:** Forex has a much larger trading volume than stocks, offering higher liquidity, allowing traders to execute trades quickly and with price certainty under normal market conditions. Stocks may experience slippage.

**Short-selling restrictions:** Stock markets impose various restrictions on short selling, but Forex has none, providing opportunities for both bullish and bearish strategies.

**Analyst influence:** Poor earnings of a listed company can trigger a stock price surge, but the Forex market is driven by central banks and large commercial transactions worldwide. The influence of analysts' opinions is much smaller than in stocks.

## Forex trading vs futures trading: differences in liquidity

**Trading scale disparity:** Forex daily trading volume is $6.6 trillion, while futures markets are only about $30 billion, a difference of 220 times.

**Trading hours:** Forex operates 24 hours a day, while futures have overnight markets but with relatively lower liquidity.

**Execution and pricing:** Forex spot market offers real-time execution and definite prices, whereas futures do not guarantee this.

**Risk control mechanisms:** In Forex, if losses exceed the margin requirement, platforms automatically issue margin calls or force liquidation. Futures markets may allow traders to lose more than their account balance.

## What are the core advantages of Forex trading?

**Very low transaction costs:** No commissions are paid; costs mainly come from the bid-ask spread, usually below 0.1%, with large orders as low as 0.07%.

**Low entry barriers:** No specific lot size requirements. While futures silver contracts start at 5,000 ounces, Forex traders can open positions with just 1,000 units of currency.

**Leverage trading:** Small capital can control large positions. For example, with 50:1 leverage, a $50 margin can control a $2,500 position.

**Ample liquidity:** The $6.6 trillion daily trading volume ensures traders can execute trades anytime.

**Flexible trading hours:** From the Monday morning open in Australia to the Friday close in New York, traders can trade anytime and anywhere.

## How does the Forex market operate?

The Forex market is a global, decentralized market with no fixed trading venues. Exchange rates fluctuate every second, influenced by economic strength, fiscal policies, international relations, and other factors. Most Forex trading is not driven by trade or tourism needs but by speculation—traders profit by predicting whether a country's currency will appreciate or depreciate relative to others.

In reality, aside from actual foreign exchange needs related to international trade and tourism, over 90% of Forex transactions are speculative.

## Summary: Why has the Forex market become the largest financial market in the world?

Forex (Foreign Exchange) represents more than just currency exchange; it is the most liquid investment channel in the global economy. With extremely low transaction costs, 24/5 continuous trading, powerful leverage mechanisms, and immense liquidity, Forex attracts countless investors worldwide. Compared to stock and futures markets, Forex offers higher transparency, lower participation costs, and more trading opportunities.

Whether you seek stable investments or high-leverage trading, the Forex market provides flexible options.