Foreign exchange trading: What beginners should know

What is the Forex Market and Why Is It Gaining Attention

The foreign exchange market is one of the most liquid markets in the world. In 2024, the average daily trading volume worldwide is approximately $7.5 trillion USD. With abundant liquidity and a wide variety of products, it presents an opportunity for everyday investors to participate.

Currency trading differs from investing in other assets because the prices of each currency are not fixed but depend on comparisons with other currencies. Currency pairs such as (Currency Pairs) like USD/THB mean we are comparing the value of the US dollar to the Thai baht. If you buy this pair at 35.00, it means purchasing one dollar with 35 baht.

Why Do Investors Choose Forex

This market has several advantages that attract traders from around the world:

High Liquidity in Trading - As the largest market, traders can enter and exit positions quickly at desired prices and volumes.

Flexible Trading Hours - Nearly 24 hours, 5 days a week, allowing traders to choose trading times that suit them.

Diverse Trading Options - Profits can be made in both rising and falling markets, enabling traders to adapt to changing market conditions.

Leverage to Increase Investment Capital - When trading derivatives, traders can control large amounts of money with a small initial capital.

What Factors Drive the Forex Market

Exchange rates are not random but are guided by several fundamental factors:

Central Bank Policies - This has the most immediate and significant impact. Decisions regarding interest rates or money supply by major central banks such as the US, Japan, or the European Union often cause major volatility.

Economic Data - Indicators like inflation rates, trade balances, or employment data signal the strength of the economy and its currency.

International Capital Flows - Political events, trade policy changes, or elections influence investors’ decisions to move money across countries.

Global Market Conditions - Movements in stock markets, bonds, or commodities affect currency values in specific ways.

Demand for Safe-Haven Currencies - During economic uncertainty, currencies like the US dollar and Japanese yen tend to see increased demand from investors.

How to Enter the Forex Market

Those interested in currency trading can choose from three main methods:

1. Spot Market Trading - (Spot Market)

This is the most straightforward method—you exchange one currency for another and hold it. When the exchange rate changes, you can convert back to realize profits or losses. However, disadvantages include needing to pay the full amount upfront, limited currency options, and high storage and exchange costs.

2. Futures Contracts Trading

A standardized option traded on formal markets, such as the TFEX in Thailand or CME in Chicago, for international currency pairs. The advantages are high liquidity and the ability to trade almost all day. The limitations are that contract sizes are often large, requiring substantial capital.

3. CFD Trading (Contracts for Difference)

This is the most flexible method—you trade derivative contracts instead of holding actual currencies. With high liquidity, 24/5 trading capability, and leverage, CFDs allow traders to enter the market with less initial capital. However, the risks are also higher.

Which Currency Pairs Are Suitable for Beginners

Choosing the right currency pair is crucial for initial success. Factors to consider include:

Liquidity - High trading volume pairs tend to have more stable prices and narrower spreads.

Volatility - Too little volatility makes timing difficult, while too much can be hard to manage risk.

Trading Hours - Although the market is open 24/7, each pair has optimal times with suitable liquidity and volatility.

News Factors - Traders following current news can select pairs affected by recent events.

For beginners, “Major Pairs” such as (Major Pairs) are good options:

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

USD/JPY - Highly popular, good liquidity, low to moderate volatility. Volatility may increase due to Japanese central bank policies. Most active during Tokyo and US market hours.

GBP/USD - Good liquidity but high volatility due to UK-specific factors. Most active during European and US market hours.

Steps to Start Trading Forex

The basic process is straightforward:

Step 1 - Choose the Right Currency Pair

Consider pairs that match your trading style and have appropriate liquidity and volatility levels.

Step 2 - Open a Position

Once decided, check current prices and analyze charts on your trading platform. Then place an order:

• Buy if you expect the currency to strengthen—profits increase as the price rises.
• Sell if you expect the currency to weaken—profits increase as the price falls.

Step 3 - Set Risk Management Conditions

Use orders like Stop Loss to automatically close positions if the market moves against you, and Take Profit to lock in gains.

Step 4 - Monitor Your Position

Maintain sufficient margin levels and observe price movements to decide when to close and realize profits.

Step 5 - Evaluate and Improve

After trading, analyze what went well and what needs improvement. Trading is a repetitive process—find what works and repeat it.

Important Precautions Not to Overlook

Forex trading involves risks, especially when using leverage. The most important thing is to understand these risks:

Excessive Leverage - While it can amplify profits, it also increases the risk of forced liquidation. Choose leverage levels appropriate to your volatility tolerance and capital.

Unexpected Volatility - Currency prices can change rapidly, especially during economic data releases or central bank meetings. Prepare with Stop Loss orders and avoid high-volatility periods.

Overtrading - Chasing every trading opportunity often leads to unplanned trades. Trade only at points where you have carefully planned.

Summary

Forex trading is a stable market with many opportunities for traders, especially through CFDs, which are easily accessible with small initial capital. It offers strategic flexibility and the chance to experiment and develop trading strategies. Success at the beginning is not difficult if you are willing to learn, practice, and follow a disciplined trading plan.