The essence of the Forex market.

An investor who plans to work on the currency exchange in order to make a profit must have a clear understanding of what Forex is all about.

First of all, he needs to know that Forex (from FOReign EXchange) is a global foreign exchange market that was formed in the early seventies of the last century, immediately after the abandonment of fixed exchange rates and the transition to floating ones. The history of this transition is very dramatic and is directly related to the destruction of the Bretton Woods international financial system, which was based on the obligation of the United States of America to exchange its national currency (US dollar) for physical gold to anyone at a clearly fixed rate (at that time it was 35 North American dollars per 1 ounce).

When the United States unilaterally refused to fulfill this obligation, a need arose for trading platforms that provide the exchange of some currencies for others at free rates. This is how the foreign exchange market arose, without which international trade in goods and services could not exist normally. So, at its core, Forex is a global exchanger whose daily turnover amounts to billions of dollars.

Participants in this financial market, which were initially played by central and commercial banks, can freely buy and sell traded currencies in the required volumes.

Thus, the first and main function of Forex is the free exchange of currencies. However, any trading implies the opportunity to make money on speculative transactions. Therefore, over time, brokers came here with margin trading services. Margin trading in the Forex market is understood as carrying out speculative financial transactions using funds that are provided by a broker on credit secured by margin, that is, a pre-agreed amount. The main difference between a margin loan and a regular bank loan is that in this case the amount of money received by the investor is usually many times greater than the amount of the collateral. The coefficient of this excess is called leverage or leverage; its essence is that leverage allows you to significantly increase the amount of profit received.

The amount of leverage can range from 1:1 (only own funds) to 1:1000, the trader independently chooses which leverage to use, and Forex dealing centers provide this opportunity.

To summarize the above, we note that the essence of Forex is that there are two types of currency traders working here - those who purchase currency for the needs of international trade, and those who buy currency for the purpose of its speculative resale. Moreover, the success of trading in the latter case requires a professional approach, which is impossible without special knowledge in the field of fundamental and technical analysis.