How to trade Forex? An introduction to understanding foreign exchange trading

Forex is the largest foreign exchange market in the world. According to data, the average daily trading volume of the global Forex market in 2024 is approximately $7.5 trillion. With high liquidity and a variety of trading tools, this market offers opportunities for traders from various groups to seek profits.

What is Forex and What You Should Know Before Getting Started

Forex trading involves exchanging and speculating on changes in exchange rates between different currencies. Unlike holding other assets, currencies do not have a fixed value; their prices are determined by comparison with other currencies, known as Currency Pairs (Currency Pairs).

For example, USD/THB refers to the comparison between the US dollar and the Thai baht. The first currency (USD) is the Base Currency, and the second (THB) is the Quote Currency. Buying USD/THB at 35.00 means you buy 1 USD by paying 35 baht.

Main Advantages of Forex Trading

1. High Liquidity: The large market size facilitates easy trading at desired prices.

2. Flexible Trading Hours: Open nearly 24/5, allowing traders to choose suitable times.

3. Diverse Currency Pairs: Profits can be made in both rising and falling markets across many pairs.

4. Leverage Benefits: Derivative tools can enhance potential returns.

5. For Both Speculation and Hedging: Can be used for various purposes.

Factors Affecting the Forex Market

The Forex market is influenced by many factors that cause volatility in exchange rates:

• Central Bank Policies: Adjustments in interest rates and money supply have the most immediate impact.
• Economic Data: Indicators such as inflation, employment, and current account balance reflect economic strength.
• International Investment Flows: Trade policies, elections, and government changes.
• Global Financial Market Conditions: Changes in stock markets, bonds, and commodities.
• Currency Safety: The dollar and yen are considered “Safe Havens,” increasing demand during crises.

How Beginners Can Trade Forex

1. Spot Market Trading (

A straightforward method is exchanging one currency for another, then waiting for exchange rate changes to realize profit or loss. The advantage is simplicity, but the limitations include requiring full capital upfront, limited currency options, storage costs, and high spreads, making it less suitable for short-term trading.

) 2. Trading Futures Contracts Based on Currency Values

Futures contracts are standardized products traded on official markets with high liquidity. They support online order placement, leverage, and can be traded almost all day. The downside is that contract sizes may be large and require significant capital.

3. Trading CFDs on Currencies

Trading CFDs ###Contracts for Difference( involves buying and selling derivative contracts to profit from price differences. This method is highly flexible due to good liquidity, 24/5 trading, leverage, and low initial capital, making it popular among traders wanting to learn with small funds. However, CFDs can carry high risks due to high leverage levels.

Choosing Currency Pairs: Options for Beginners

Selecting the right currency pairs can make trading easier. Consider:

• Liquidity: Popular pairs facilitate trading at desired prices.
• Volatility: Avoid very low or excessively high volatility; choose appropriate levels.
• Trading Hours: Each pair has optimal times with good liquidity and volatility.
• News and Fundamentals: Traders can leverage news and economic factors.

) Popular Pairs for Practice Trading

• EUR/USD: The most liquid, moderate volatility. Suitable for short- and medium-term trading. Moves significantly during European and US market openings.
• USD/JPY: Good liquidity, low to moderate volatility. High volatility may occur due to Japanese central bank policies. Active during Tokyo and US market hours.
• GBP/USD: Good liquidity, high volatility. Moves strongly during European and US market openings.

Forex Trading Steps for Beginners

Step 1: Choose the Currency Pair to Trade

Identify a currency pair that matches your investment style and risk tolerance.

Step 2: Open a Trading Position

Check current prices, analyze charts, and place orders:

• Buy ###Buy(: When expecting the currency to strengthen. If correct, profit increases; if wrong, loss occurs.
• Sell )Sell(: When expecting the currency to weaken. If correct, profit; if wrong, loss.

) Step 3: Set Trading Conditions

Use Limit Orders to enter at desired prices, and set Stop Loss to automatically close positions if prices hit a loss threshold.

Step 4: Monitor and Close Positions

Track price movements and margin levels. Close positions when reaching profit targets or cutting losses as planned.

Step 5: Review and Improve

Reflect on mistakes and successes to refine your trading plan. Since trading is an ongoing process, finding a “winning formula” and applying it repeatedly is important.

Cautions When Trading Forex

Forex trading carries high risks, especially when using leverage. Be cautious of:

1. Excessive Leverage: High leverage increases potential gains but also the risk of forced liquidation. Choose levels appropriate to market volatility and your capital.
2. Not Preparing for Volatility: Current currencies are highly volatile, especially around central bank meetings and key economic data. Always set Stop Loss and avoid trading during major event times.
3. Overtrading: Excessive trading often leads to poor decisions. Trade only according to well-planned strategies.

Summary

Forex is a large market offering opportunities for various traders, especially CFDs with high liquidity, low initial capital, and versatile strategies. Beginners can use it as a testing ground for new strategies or to diversify their portfolio. However, the high risks involved require proper management, continuous study, and consistent practice.