The essence of the Forex market.

An investor planning to trade on the foreign exchange market for profit must have a clear understanding of the essence of forex. First and foremost, they need to know that forex (from FOReign EXchange) is a global currency market that emerged in the early 1970s, immediately following the abandonment of fixed exchange rates and the transition to floating exchange rates.

The history of this transition is quite dramatic and is directly linked to the collapse of the Bretton Woods international financial system, which was based on the United States' commitment to exchange its national currency (the US dollar) for physical gold to anyone at a strictly fixed rate (at the time, 35 North American dollars per ounce).

When the US unilaterally abandoned this commitment, the need arose for trading platforms that facilitated the exchange of one currency for another at free rates. This is how the foreign exchange market emerged, without which international trade in goods and services could not function properly. So, at its core, Forex is a global-scale exchange market, with daily turnover amounting to billions of dollars.

Participants in this financial market, initially central and commercial banks, are free to buy and sell traded currencies in the required volumes. Thus, the primary and primary function of Forex is the free exchange of currencies. However, any trading implies the opportunity to profit from speculative operations. Therefore, over time, brokers offering margin trading services came into the picture.

Margin trading in the Forex market refers to speculative financial transactions using funds provided by a broker as collateral, or a pre-agreed sum. The main difference between a margin loan and a regular bank loan is that the amount of money received by the investor is typically many times greater than the collateral. This excess ratio is called leverage, and its essence is that leverage allows for a significant increase in profits.

Leverage can range from 1:1 (equity only) to 1:1000. Traders choose their leverage, and forex dealing centers provide this option.

To summarize, the essence of Forex is that it is home to two types of currency traders: those who acquire currencies for international trade and those who buy currencies for speculative resale. Successful trading in the latter case requires a professional approach, which is impossible without specialized knowledge of fundamental and technical analysis.