What is Forex? A beginner's guide to trading currencies

Forex Market from an Investor’s Perspective

The (Foreign Exchange: Forex) market is considered one of the most heavily traded assets in the world. Data from 2024 shows that the average daily trading volume worldwide is around 7.5 trillion US dollars. The abundance of liquidity and diverse trading tools have created opportunities for ordinary investors to participate in speculation in this market conveniently.

What makes Forex interesting is: trading currencies does not mean simply buying one currency outright, but rather comparing the prices between two currencies, called Currency Pairs, such as USD/THB, where the first currency is called the Base Currency and the second is the Quote Currency. Buying the USD/THB pair at 35.00 means purchasing 1 dollar by selling 35 baht, or USD/JPY at 160.00 means buying 1 dollar with 160 yen.

Advantages that Make Forex a Favorite Market

1. Superior Liquidity: This market has enough buyers and sellers to handle large orders without causing prices to deviate from expectations.

2. Flexible Trading Hours: With a 24/5 market system, traders can choose their preferred trading times without restrictions.

3. Two-way Trading: Whether the currency is strengthening or weakening, traders can profit in both directions.

4. Leverage Benefits: Trading Forex on derivatives allows traders to amplify their capital to increase profit potential.

Factors Affecting Currency Fluctuations

Exchange rate volatility does not happen randomly. Several key factors influence it:

Central Bank Policies: Interest rate policies and money supply have the most rapid and intense influence on currency values, especially for major economies like the US, Japan, or the Eurozone.

Economic Data: Inflation figures, balance of payments, and employment statistics all communicate the health of the economy and naturally impact currency strength.

International Investment Movements: Trade policies, elections, or political changes create volatility through capital flows.

Global Market Conditions: Fluctuations in oil prices, stock market changes, and commodity demand affect the currencies of related countries, especially.

Safe Haven Search: During high-risk market periods, the US dollar and Japanese yen become safe havens, as investors seek to avoid risk by increasing demand for these currencies.

How Many Types of Forex Trading Are There?

For general investors, there are three main options:

( Spot Market) A straightforward method: exchanging one currency for another and waiting for the exchange rate to change before converting back to realize profit or loss. Advantages: simple; disadvantages: requires full capital upfront, limited currency options, storage costs, and relatively high spreads, making it unsuitable for short-term trading.

Trading Futures on Currencies

Futures contracts are standardized and traded on regulated markets such as TFEX in Thailand or CME in Chicago. Advantages: high liquidity, easy online order placement, leverage options, and trading almost throughout the day. Disadvantages: contract sizes are often large, requiring significant capital, which may be a barrier for retail investors.

( Trading CFDs on Currencies Contracts for Difference (CFDs) allow profit from price differences without holding the actual currencies. Advantages: high liquidity, nearly 24/5 trading, leverage, and low initial capital. Suitable for short-term profit-making. Disadvantages: high leverage increases risk from volatility and forced position closures, so good risk management is essential.

Which Currency Pairs Are Suitable for Beginners?

Choosing the right currency pair is half of success. Factors to consider:

Liquidity: Pairs with high trading volume, such as EUR/USD, are suitable for beginners because they are easy to buy and sell with narrow spreads.

Volatility: Pairs with too low volatility are hard to time; too high volatility makes risk control difficult. Find a balanced level.

Trading Hours: Although Forex is open 24/5, different pairs have different liquidity and volatility peaks, e.g., EUR/USD moves best during European and US market hours.

Related News: Traders who follow news should choose pairs influenced by key economic data.

Popular Pairs for Beginners:

• EUR/USD: Highest liquidity, moderate volatility, suitable for short- and medium-term trading.
• USD/JPY: Good liquidity, low to moderate volatility, may fluctuate with Japanese Bank policies.
• GBP/USD: Good liquidity, high volatility, due to UK-specific factors.

Forex Trading Steps for Beginners

) Step 1: Choose a Currency Pair Select a currency pair that matches your trading conditions and investment style. Start with major pairs with high liquidity.

Step 2: Analyze Price and Open a Position

Check the current price of your chosen pair, analyze technical charts, and decide to place:

• Buy Order: When expecting the Base currency to strengthen. If correct, profit increases as the price rises.
• Sell Order: When expecting the Base currency to weaken. If correct, profit increases; if wrong, losses occur.

Step 3: Set Exit Conditions

Use Stop Loss to limit losses and Take Profit to lock in gains. The system will automatically close the position when the price reaches these levels.

( Step 4: Monitor and Wait to Close Track price changes, observe margin levels, and wait until the position is closed to realize profit or loss.

) Step 5: Analyze and Improve Review each trade, identify mistakes, and improve your strategy. Trading is a repetitive process; once you find effective methods, you can continue using them.

Cautions for Beginner Traders

Overleveraging

Leverage amplifies both gains and losses. Excessive leverage risks forced position closures (###Margin Call###). Choose leverage levels appropriate to your currency pair volatility and capital.

Not Preparing for Volatility

Currently, currencies are highly volatile, especially during central bank announcements or economic releases. Unprepared traders may lose significant capital. Set stop-loss points, avoid high-volatility periods, and be ready for price changes.

Excessive Trading

Frequent trading increases the risk of unplanned trades, often leading to losses. Trade only when signals and plans are clear, not impulsively.

Lack of Knowledge and Experience

Beginners jumping into trading without understanding risk analysis may lose money and miss learning opportunities. Study risk management techniques and start trading with small amounts.

Summary

Forex is a market with potential for general investors, especially CFD trading, which offers high flexibility, requires relatively low initial capital, and supports various strategies. Traders can seek profits, test new strategies, or diversify their investment portfolios conveniently.

However, Forex trading carries high risks, especially with leverage. Every trader should educate themselves thoroughly, understand the tools, set money management rules, and prepare for potential losses. Success in Forex trading does not come from a single profit but from consistent adherence to a plan and continuous improvement of trading methods.