What is Forex? Currency Trading Strategies for Beginners in 2025

Basic Knowledge About the Foreign Exchange Market

The Forex (Forex) market is considered the largest and most liquid financial market in the world. In 2024, the average daily trading volume is approximately $7.5 trillion USD. With its massive market size and diverse trading tools, traders from various groups can participate and find profit opportunities quite easily.

How Forex Operates

Basic Understanding of Currency Trading

Forex trading involves exchanging foreign currencies, where each currency does not have a fixed value but is determined by comparison with other currencies, called “Currency Pairs” (Currency Pairs).

For example, USD/THB means:

• The first currency (USD) is the base currency (Base Currency)
• The second currency (THB) is the quote currency (Quote Currency)

When buying USD/THB at 35.00, it means you spend 35 Thai Baht to buy 1 US dollar. Similarly, buying USD/JPY at 160.00 means spending 160 Japanese Yen to buy 1 US dollar.

Advantages of Forex Trading

The Forex market is popular among traders worldwide due to the following main benefits:

1. Highly liquid: This asset has sufficient liquidity, allowing traders to buy and sell at desired prices and volumes easily.
2. Flexible trading hours: The Forex market is open almost 24 hours, 5 days a week, enabling traders to choose suitable times.
3. Diverse market opportunities: Many currency pairs are available, allowing profits in both bullish and bearish markets.
4. Suitable for speculation and hedging: You can use Forex trading to hedge against risks in your international investment portfolio.
5. Leverage benefits (Leverage): Trading derivatives allows traders to benefit from leverage.

Factors Affecting Exchange Rates

The Forex market is influenced by several factors:

• Monetary policy of central banks: Changes in interest rates and money supply can rapidly and strongly impact exchange rates.
• Economic indicators: Metrics such as inflation, trade balance, and employment data indicate the strength of a currency.
• International investment flows: Changes in trade policies, election results, and government shifts.
• Global financial environment: Changes in stock markets, bond markets, and commodity prices.
• Crisis risk: Currencies like the dollar and yen are viewed as safe assets; during high risk, investors tend to buy these currencies more.

Different Methods of Forex Trading

1. Spot Market (Spot Market)

The simplest method is to buy one currency to exchange for another. When the exchange rate changes, you can realize profits or losses.

Advantages: Simple process, no need to understand complex contracts.

Limitations: Requires full payment upfront, limited currency pairs, storage costs, and often high exchange fees. Not suitable for short-term trading.

2. Futures Contracts

A standardized option traded on official markets such as TFEX in Thailand or CME in the USA.

Advantages: High liquidity, leverage available, tradable almost all the time.

Limitations: Contract sizes are often large, requiring significant capital, which may be a barrier for retail investors.

3. CFDs (Contracts for Difference)

A highly flexible method involving derivative contracts that give rights to profit from price differences.

Advantages: High liquidity, tradable nearly 24/5, leverage available, low initial capital, suitable for short-term profit.

Limitations: High risk due to potential high leverage, increasing the risk of forced liquidation.

How to Choose Currency Pairs for Beginners

Criteria for Selecting Currency Pairs

Liquidity: Popular pairs with high liquidity facilitate trading at desired prices.

Volatility: Low-volatility pairs are easier to trade, but too much volatility makes risk management difficult. Moderate volatility is recommended.

Trading Hours: Although the Forex market is open 24 hours, each currency pair has specific times with higher liquidity and volatility.

Fundamental Factors and News: Traders who follow news can select currency pairs affected by various news events.

Recommended Pairs for Beginners

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

USD/JPY: Highly popular, good liquidity, low to moderate volatility, but can increase with Japanese central bank policies. Active during Tokyo and US market openings.

GBP/USD: Good liquidity, high volatility, influenced by UK-specific factors. Moves notably during European and US market openings.

Steps for Beginners to Trade Forex

Step 1: Choose a Currency Pair

Identify currency pairs that meet your trading criteria to find suitable trading opportunities aligned with your investment style. Select pairs with liquidity and volatility appropriate for your experience.

Step 2: Open a Trading Position

After selecting a currency pair, check current prices and analyze technical charts on your trading platform. Then place buy or sell orders:

• Buy Order (Buy): When you expect the currency to strengthen. If the price rises as expected, profit increases; if wrong, you incur a loss.
• Sell Order (Sell): When you expect the currency to weaken. If the price drops as expected, profit increases; if wrong, you incur a loss.

Step 3: Set Risk Management Conditions

Use Stop Loss orders to automatically close positions if price moves against you, and Take Profit orders to lock in gains at your target level.

Step 4: Monitor Margin Levels

Track price changes and your Margin Level (Margin Level) to ensure you do not approach a Margin Call.

Step 5: Close Positions and Evaluate Trading Results

Close your positions to realize profits or losses, then review your trading performance and adjust your plan for the next trade. Analyze what worked well and what needs improvement.

Trading is an ongoing process. When you find a method that works, stick to it and repeat.

Warnings and Risks in Forex Trading

Main Risks to Be Aware Of

Using excessive leverage: Leverage can amplify profits but also increases the risk of losing your investment. When prices move against your position, forced liquidation may occur. Choose leverage appropriate to market volatility and your capital.

Increased volatility: Currencies can be highly volatile, especially during major economic data releases or central bank meetings. Lack of preparation for volatility can lead to significant losses. Set appropriate Stop Losses and avoid trading during major news events.

Overtrading: Trading without a plan or too frequently can increase costs and risks. Traders should only trade when they have clear signals and plans.

Discipline and consistency: Maintain strict money management, avoid risking large amounts on single trades, and follow your trading plan with discipline.

Summary

Forex trading offers potential for income for those interested in financial markets, especially through CFDs, which require relatively low initial capital and offer high flexibility. Various strategies can be employed, allowing traders to experiment and improve continuously.

However, success in Forex trading does not come from luck or intuition but from thorough education, good planning, careful risk management, and following proven methods. Anyone can start trading Forex, but before doing so, it’s essential to understand the associated risks and prepare accordingly.