Forex Foreign Exchange Investment Beginner's Complete Guide: How to Profit from Exchange Rate Differences Starting from Zero

What is Forex Trading? Why Do So Many People Choose Forex?

The essence of forex trading is simple—seeking profit opportunities through fluctuations in global currency prices. At any given moment, approximately $5.3 trillion USD worth of transactions flow through the forex market daily, far exceeding the combined size of all stock and bond markets.

Forex (Foreign Exchange Market) is not a physical location but a decentralized trading network. Banks, investment institutions, hedge funds, and individual investors from around the world participate. Unlike stock markets that operate in centralized venues like the NYSE, the forex market operates 24 hours a day, Monday through Friday, without interruption.

In simple terms, forex investment involves predicting how the prices of two currencies will change relative to each other, then buying or selling currency pairs to profit. For example, if you predict the euro will appreciate against the dollar, you buy the EUR/USD pair; if you expect it to depreciate, you can short the pair.

What Can You Trade in the Forex Market? Main Currency Pairs Explained

The main commodity in the forex market is currency. But currencies are always traded in pairs.

For example, EUR/USD:

• EUR (Euro) is the base currency, on the left side of the pair
• USD (US Dollar) is the quote currency, on the right side

An exchange rate of EUR/USD = 1.1500 means: 1 euro can be exchanged for 1.1500 US dollars.

Since exchange rates are constantly influenced by economic, political, and central bank policies, this creates endless profit opportunities for traders.

The 7 Most Active Major Currency Pairs Globally

Although over 30 major currencies are traded worldwide, only these 7 “main players” account for 85% of the total trading volume, with the highest liquidity:

These pairs are highly liquid, have tight spreads, and are most suitable for beginners to practice.

How Does Forex Investment Make Money? How Does Leverage Amplify Returns

Let’s understand what forex investment is and how to profit from it through a real example.

Scenario: You are bullish on the euro and plan to buy EUR/USD.

1. Your action: Use $11,500 to buy 10,000 euros at an exchange rate of EUR/USD = 1.1500.
2. Wait for appreciation: After two weeks, the euro indeed appreciates.
3. Close position for profit: Sell the 10,000 euros at the new rate of 1.2500, receiving $12,500.
4. Profit: $12,500 - $11,500 = $1,000 profit.

Sounds good, but here’s a key point—leverage.

In real forex trading, you don’t need to put up the full $11,500. Using leverage tools, you might only need to deposit a margin of $50–$60 to control the same 10,000 euro position. This means you can participate in large trades with minimal capital.

But beware: leverage is a double-edged sword. It can double your profits but also your losses. If the exchange rate moves against you, your small margin can be wiped out instantly.

Why Choose Forex Investment? 6 Core Advantages

1. Very Low Trading Costs

Unlike stock trading, which involves various fees, management costs, and taxes, forex brokers earn only a tiny spread (the difference between bid and ask prices). This difference is usually just a few pips, making the cost almost negligible.

2. Market Operates 24 Hours

From Sunday night in New York to Friday afternoon in New York, the market is open. During this time, Asian, European, and American markets take turns operating. You can participate anytime without fixed opening hours—ideal for working professionals as a “side hustle.”

3. No Market Manipulation

With a daily trading volume of $50 trillion, no individual, institution, or even central bank can control prices unilaterally. The market is entirely driven by supply and demand, making it the most transparent and fair market.

4. Leverage Power

You can use a margin of $100 to control a position of $5,000 (50:1 leverage) or even higher. This is revolutionary for small investors.

5. Very Low Entry Barrier

Many platforms require only $50–$100 minimum deposit to start trading, which is impossible in stock or real estate investments.

6. Rich Tools and Indicators

Modern forex platforms integrate technical analysis tools, economic calendars, real-time news, automated trading systems, and more, making investment decisions more scientific.

8 Steps: How to Start Your First Forex Trade

Step 1: Master 8 Essential Forex Terms

Before placing orders, you must understand these terms:

Long (Buy): Buying a currency pair, betting it will appreciate. Every pip increase earns you profit.

Short (Sell): Selling a currency pair, betting it will depreciate. Every pip decrease earns you profit.

Leverage: A tool to control large positions with a small amount of capital. 50:1 leverage means controlling $50 with $1.

Margin: The minimum amount you need to deposit in your account to maintain a position. Brokers freeze this amount as a “collateral.”

Pip: The smallest price change in a currency pair, usually the 4th decimal place. EUR/USD moving from 1.1500 to 1.1505 is a 5 pip change.

Spread: The difference between the bid and ask prices. This is the broker’s income.

Lot: The unit size of your trade. Standard lot is 100,000 units; mini lot is 10,000; micro lot is 1,000. Beginners often practice with micro lots.

Stop Loss & Take Profit: Automatic closing orders. Stop loss closes the position when losses reach a certain point; take profit closes when profits reach a target.

( Step 2: Understand 4 Types of Forex Trading

● Spot Forex Immediate settlement after both parties agree on the price, usually within two business days. Mainly used by banks and large financial institutions, but illegal in Vietnam.

● Forex CFDs This is the main choice for individual investors. You don’t actually hold the currency but enter into a contract with a broker betting on exchange rate movements. 99% of forex platforms in Vietnam use this model. When choosing a platform, ensure it is licensed by international regulators like ASIC, FCA, CySEC.

● Currency Futures Contracts to exchange two currencies at a predetermined price on a future date. Not common in Vietnam.

● Forex Options Buyers pay a fee for the right to buy or sell currency at a specific price within a certain period. Niche in Vietnam.

) Step 3: Choose a Reliable Forex Broker

Three standards for a good platform:

1. International License: Must be regulated by authorities like ASIC (Australia), FCA (UK), or CySEC (Cyprus).
2. Reasonable Fees: Low spreads (the lower, the better), transparent commissions, no hidden charges.
3. Comprehensive Trading Tools: Offer a variety of currency pairs, chart analysis tools, one-click closing, etc.

( Step 4: Open a Trading Account

Preparation needed:

• ID card or passport (both sides)
• Email and phone number
• Bank account details
• Risk tolerance questionnaire

) Step 5: Select the Currency Pair to Trade

This step requires research. Analyze factors such as:

Economic Outlook: Is the US economy showing signs of recession? The dollar might weaken. Consider trading pairs with relatively strong currencies.

Trade Advantages: Is a country’s exports in high demand globally (e.g., food, energy)? The country can earn foreign exchange through exports, causing its currency to appreciate.

Geopolitics: Elections, wars, trade disputes—all influence exchange rates. Markets often price in these events in advance; when the event occurs, prices may move in the opposite direction.

Technical Analysis: Past price trends, support/resistance levels, trend lines—all provide reference points.

Step 6: Decide Your Margin Size

This depends on your risk appetite and account size. A common rule: Use no more than 2% of your total account funds as margin per trade.

For example, with a $2,000 account, the maximum margin for a single trade is $40. Even if you lose 50 trades in a row, your account won’t be wiped out.

Step 7: Decide to Buy or Sell

Once you select the currency pair and margin, you need to decide the direction:

Click BUY if you believe the base currency will appreciate. Every pip increase earns profit; decrease results in loss.

Click SELL if you believe the base currency will depreciate. Every pip decrease earns profit; increase results in loss.

All prices are displayed in currency pair format. Understanding this is crucial.

Step 8: Set Stop Loss and Take Profit Orders

This step is very important and often overlooked by beginners.

Stop Loss: An automatic close at a maximum acceptable loss point. For example, after buying EUR/USD, set a stop loss at 1.1450. If the price drops to 1.1450, the system automatically sells to limit losses.

Take Profit: An automatic close at a target profit point. For example, after selling GBP/USD, set a take profit at 1.3200. When the price reaches 1.3200, the system automatically buys back to lock in profit.

Example: EUR/USD current price is 1.11128. You predict it will rise to 1.2000 then fall back. You can:

• Buy EUR/USD
• Set stop loss at 1.1000 (about 100 pip loss)
• Set take profit at 1.2000 (profit target)

Step 9: Avoid Overtrading and Monitor Continuously

Forex markets are highly volatile. Beginners tend to trade frequently in short periods, which can eat into profits through spreads. More importantly:

• Follow your trading plan strictly; don’t be swayed by market emotions
• Regularly review losing trades to identify patterns
• Continuously learn new analysis methods and risk management techniques
• Practice with small amounts or demo accounts initially

Stick to this process, and over time, you will see your account grow.

3 Key Factors Influencing the Forex Market

Central Bank Policies

Central banks control money supply. When they implement quantitative easing (QE), injecting large amounts of money into the economy, the currency usually depreciates. Conversely, raising interest rates often causes currency appreciation.

Economic Data

If economic indicators like GDP, unemployment, or inflation exceed expectations positively, capital flows into the country seeking returns, pushing the currency higher.

Market Sentiment

Sometimes collective psychology outweighs fundamentals. If traders generally bearish on a currency, their collective selling can drive prices down, creating a self-fulfilling prophecy.

Common FAQs

Q: Who regulates the forex market?
A: The market itself is decentralized, but each country has regulatory bodies. The US has CFTC and NFA, Europe has FCA, Australia has ASIC. Choosing a platform regulated by these agencies is the first step to protecting yourself.

Q: How much money flows daily?
A: About $50 trillion USD daily, averaging $2,200 billion per hour. 90% of this comes from speculative trading (including individual investors like you), and 10% from actual imports, exports, and capital flows. Individual traders contribute about $17 billion daily.

Q: What are the advantages of forex investment over stocks?
A: Lower costs, 24-hour trading, ability to short, high transparency, low entry barriers. But risks are higher, requiring stronger psychological discipline.

Q: Can I get rich overnight through forex?
A: Theoretically possible (high leverage + perfect judgment), but extremely unlikely. Most day traders end up losing money. A healthy mindset treats it as a long-term investment aiming for steady monthly or yearly returns, not quick doubling.

Summary: What is forex investment? Simply put, it’s trading currencies in the world’s largest financial market, profiting from exchange rate movements. It has low barriers to entry, low trading costs, and high transparency, but also requires knowledge, discipline, and patience. Follow the above 8 steps, and you can safely enter this market.