**Article Rewrite and Expansion based on Original Article “What is Forex (Foreign Exchange)?” originally by Calvin at Bitget.com**
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# Understanding Forex (Foreign Exchange): The World’s Largest Financial Market
## Introduction to Forex
The foreign exchange market, commonly known as Forex or FX, is a global marketplace for exchanging national currencies against one another. It is the largest financial market in the world, with a daily trading volume exceeding $6 trillion as of 2022 according to the Bank for International Settlements. Due to its sheer size and liquidity, Forex plays a critical role in the global economy, facilitating international trade, investment, tourism, and even government operations.
This article examines the core concepts of Forex, how it operates, the factors driving its growth, and strategies for those considering participation. Drawing from the original article by Calvin at Bitget.com as well as additional authoritative sources, it provides a comprehensive exploration for anyone seeking to understand this dynamic market.
## What is Forex?
– Forex refers to the global marketplace where currencies are traded.
– It operates as an over-the-counter (OTC) market, meaning transactions occur directly between parties, often facilitated by banks, brokers, and financial institutions.
– Unlike stock markets, Forex does not have a centralized exchange; trading is conducted electronically via computer networks.
### Major Functions of Forex
– Provides liquidity for international trade and investment.
– Enables businesses to convert profits and fund operations in different currencies.
– Allows individuals and institutions to profit from exchange rate fluctuations.
– Helps central banks implement monetary policy by influencing currency rates.
## Key Features of the Forex Market
– **Decentralized Nature:** Forex is not controlled by a single entity or physical exchange. Global banks and financial institutions form a vast network where trading is continuous.
– **High Liquidity:** The trading volume is immense, surpassing other financial markets. This ensures smooth, efficient transactions with minimal price slippage.
– **24-Hour Operation:** Forex runs 24 hours a day, 5 days a week, due to overlapping market hours across major financial centers (Tokyo, London, New York, Sydney).
– **Leverage:** Forex brokers offer leverage, allowing traders to control positions much larger than their actual deposits. While this can amplify profits, it also increases potential losses.
– **Currency Pair Trading:** Currencies are always quoted in pairs (e.g., EUR/USD, GBP/JPY). Traders speculate on the price movement of one currency relative to another.
## A Brief History of Forex
– The modern Forex market originated after the collapse of the Bretton Woods system in 1971, which led to floating exchange rates.
– Before this, currencies were tied to the value of gold or the US dollar. The shift to floating rates allowed currencies to be valued according to supply and demand in the global marketplace.
– Until the 1990s, Forex trading was mainly an activity for banks and large institutions. With the advent of the Internet, access broadened to include retail
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