How to start Forex trading? A guide for newcomers to the industry

The foreign exchange market (Foreign Exchange Market) is one of the most important and heavily traded financial markets in the world. According to data from 2024, the average daily trading volume in the global Forex system is approximately $7.5 trillion USD. With a wide variety of trading instruments and abundant liquidity, profit opportunities are open to traders of all types. This article will help you understand where beginners should start when trading forex.

Basic Knowledge Needed Before Trading Forex

What exactly is Forex Trading?

Trading foreign currencies (Forex Trading) is not about making money from the value of a single currency but involves trading based on comparisons between two currencies, called a “currency pair” (Currency Pair).

For example, the USD/THB pair at a price level of 35.00 means: buying 1 US dollar requires 35 Thai Baht, or USD/JPY at 160.00 means 1 US dollar = 160 Japanese Yen.

In any currency pair, the first currency (Base Currency) is the one you are buying or selling, while the second currency (Quote Currency) is used to measure the value.

Note: Sometimes the term Forex is used generally to refer to CFD trading, such as trading commodities, gold, or stock indices. But in the narrowest sense, Forex specifically refers to currency trading only.

Why is Forex popular among general traders?

1. Abundant liquidity - The size of the market means you can enter and exit positions quickly at your desired price.

2. Flexible trading hours - Open nearly 24/5, allowing traders to choose times that suit their schedules.

3. Opportunities for profit in both bullish and bearish markets - Many currency pairs are available, and profits can be made from price increases or decreases.

4. Application of diverse strategies - Forex can be used for both speculation and hedging against foreign assets.

5. Benefits from leverage - When using derivative instruments, you can leverage (Leverage) to amplify your capital’s potential.

Factors that cause exchange rates to fluctuate

To succeed as a beginner in forex trading, you need to understand the main drivers of price changes:

• Central bank decisions - Changes in interest rates or money supply significantly impact exchange rates, especially from major economies’ central banks.

• Economic data - Figures such as inflation rates, balance of payments, and employment reports shed light on monetary policy trends and overall economic strength.

• International capital flows - Changes in trade policies, investment environments, or political stability affect cross-border investments.

• Global market conditions - Changes in stock markets, bond markets, and commodity prices influence exchange rates. For example, rising oil prices may strengthen the currencies of oil-exporting countries.

• Market uncertainty - Certain currencies like the US dollar and Japanese Yen are considered “safe assets” that investors seek during times of increased risk.

Different paths to trading Forex

For retail investors (not institutional), the main options are:

Method 1: Spot Trading (Spot Trading)

This straightforward method involves exchanging one currency for another and waiting for the exchange rate to change before converting back to realize profit or loss.

Advantages: Simple, straightforward.

Disadvantages: Requires full capital upfront, limited currency pairs, high exchange fees, not suitable for short-term trading.

Method 2: Trading Futures Contracts

Futures are standardized instruments traded on formal markets (such as TFEX in Thailand or CME in the US). They are highly liquid, can be traded almost throughout the day, and allow leverage.

Advantages: Good liquidity, tradable nearly 24/5.

Disadvantages: Futures contracts are often large in size, requiring substantial initial capital.

Method 3: Trading CFDs (Contracts for Difference)

CFDs are derivative contracts that give you rights to profit from price differences. They are highly flexible, can be traded almost 24/5, require less initial capital, and benefit from leverage.

Advantages: Flexible, low initial capital, very popular for short-term trading.

Disadvantages: High leverage increases risk of margin calls, and positions can be forcibly closed, so risk management is essential.

Which currency pairs are suitable for beginners?

Choosing the right currency pair is a crucial first step. Consider these factors:

Liquidity - High liquidity pairs are easier to trade with narrower spreads.

Volatility - Too low volatility makes finding good trading opportunities difficult; too high makes risk management harder.

Trading hours - Although Forex markets are open 24/5, some pairs have peak liquidity during specific times.

News and events - Certain pairs are more affected by news and specific events, which some traders prefer to trade based on news.

For beginners, consider these pairs:

• EUR/USD - The most liquid pair with moderate volatility, suitable for short- and medium-term trading. Moves significantly during European and US market hours.

• USD/JPY - A popular pair with good liquidity and low to moderate volatility (which may increase depending on Japanese central bank decisions). Most active when Tokyo and US markets are open.

• GBP/USD - A highly liquid pair with higher volatility due to UK-specific factors. Suitable for traders who prefer more dynamic price movements.

Steps for beginner forex trading

Step 1: Choose a currency pair and determine the direction

After selecting a pair, check the current price and analyze technical charts on your trading platform.

Step 2: Open a position

When ready, place an order:

• Buy order - if you think the currency will strengthen, and profits will increase as the price rises.

• Sell order - if you think the currency will weaken, and profits will increase as the price falls.

Step 3: Set protective orders

Use Limit Orders to enter at desired levels, and most importantly, set Stop Loss orders to automatically close your position if the market moves against you.

Step 4: Monitor margin levels

Continuously watch your margin to ensure sufficient funds to keep your position open.

Step 5: Close the position and learn

When the price moves as expected, close the position to realize profits. If your prediction was wrong, review what went wrong. Generally, trading is a repetitive process. When you find what works, repeat it, as Charlie Munger once said: “We’ve had enough good sense when something is working very well to keep doing it. I’d say we’re demonstrating what might be called the fundamental algorithm of life — repeat what works.”

Important warnings to know

Since forex trading involves high risk, here are some precautions:

Risks of high leverage - While leverage can amplify profits, it also magnifies losses. Traders using high leverage risk being forced to close positions (Margin Call), potentially losing all their funds. Choose leverage levels appropriate to your risk tolerance.

Unexpected volatility - Central bank news, economic data, or geopolitical events can cause exchange rates to explode. No clear stop-loss or take-profit points may be available, and traders might find their positions forcibly closed or halted.

Emotional trading - Overtrading or trading based on feelings rather than a plan is dangerous. Traders should only trade according to well-planned strategies.

Summary

Forex trading for beginners may seem challenging, but with thorough education and consistent practice, you can understand the markets and develop your own trading strategies. Especially with CFDs, which require less initial capital and offer flexibility, traders can explore strategies suited to their preferences.

The Forex market offers traders nearly 24/5 opportunities to profit from exchange rate movements, test new strategies, and hedge investment portfolios. However, success depends on good risk management and continuous learning.

Warning: Investments involve risks and may not be suitable for everyone.