What is Forex and how does this market work?

A lot has been said about Forex. But what is Forex trading and how does it work? This is one of the most popular questions that arises when people are thinking about investing.

Forex, also known as FX, is a place where foreign exchange is traded, that is, converting one currency into another. Most forex traders buy and sell currency for commercial, tourist and trading purposes. Notably, the forex market is the largest financial market in the world with a daily turnover of about $6.6 trillion, and this figure continues to grow.



What is the Forex market?
The forex market is the platform on which most world currencies are traded.
Currency trading is done electronically on OTC markets. Typically, Forex trades are conducted between traders through computer networks, where traders buy and sell currency pairs in the round-the-clock market.

Unlike other transactions with a centralized market, forex traders there is no centralized exchange market. Thus, all transactions between forex traders occur exclusively through computer networks.

For example, if you live in Russia and want to purchase a product in the U.S., you or the foreign company you are transacting with must pay for the product in U.S. dollars (USD). Therefore, you will have to exchange the equivalent amount in rubles (RUB) for US dollars before you can pay for your product abroad.



When did Forex trading begin? And where did it start?
Although for beginners, Forex trading may seem like something new, it is not a trend of today, but rather decades.

Forex opened earlier when people exchanged currencies and commodities to buy other goods and services. Since then, the market has undergone massive transformations, from barter trading to the era of metals and eventually to money.

The modern forex market was invented in the early 1970s in the US when the dollar was allowed to float freely in the market against other currencies.
Foreign exchange trading has become in demand in many areas of life: usually it is trade, commerce or tourism. Because currencies vary depending on geographic location, using one type of currency to conduct trades is almost impossible.



This is where currency trading comes in handy.
Thus, people can always purchase goods and services in foreign markets 24 hours a week without experiencing currency barriers.

Based on this, the foreign exchange market is considered the most liquid financial market in the world, it is larger than other asset markets such as bonds, commodities and stocks.