How to Teach Forex Trading Correctly for Beginners

The foreign exchange market is a destination for many investors due to its size and enormous profit opportunities. In 2024, the average daily trading volume of the global Forex market is approximately $7.5 trillion USD. However, for those who want to learn how to trade Forex as a way to generate additional income, understanding the basics and choosing the right strategies are key to success.

Basic Knowledge: What is Forex

Definition of Currency Trading

Forex trading is the buying and selling of foreign currencies, which differs from other assets in that money does not have a fixed value but has a value compared to other currencies called “currency pairs” (Currency Pairs)

For example, the currency pair USD/THB consists of:

• Base Currency (Base Currency): USD
• Quote Currency (Quote Currency): THB

When you buy USD/THB at 35.00, it means you buy 1 US dollar by paying 35 Thai Baht. Similarly, buying USD/JPY at 160.00 means purchasing 1 US dollar by paying 160 Yen.

Main Advantages of the Forex Market

The Forex market is popular due to the following benefits:

1. Massive Liquidity: Many traders make it easy to enter and exit positions at desired prices.

2. Flexible Trading Hours: The market is open nearly 24 hours, 5 days a week, allowing you to choose convenient times.

3. Opportunities in Various Conditions: You can trade both when prices go up and down, providing multiple opportunities.

4. Leverage: Margin systems allow you to control larger positions with less capital.

5. Speculation and Hedging Tools: Can be used to generate profits and hedge investment portfolios.

Factors Driving the Forex Market

The currency exchange market does not move randomly but is driven by various factors:

Monetary Policy from Central Banks: Decisions on interest rates and money supply entering the economy cause rapid and intense volatility.

Economic Data: Inflation figures, balance of payments, employment rates, etc., all indicate the strength of a currency.

Capital Flows: Trade policies, government changes, elections affect international money movements.

Global Market Conditions: Changes in stock markets, bonds, and commodities directly impact currency prices.

Economic Crisis Risks: Some currencies like the dollar and yen are considered “safe assets” that investors demand more during economic downturns.

Forex Investment Options for Retail Investors

Method 1: Trading Real Money in the Spot Market

This is the most basic method—you buy one currency and sell another. When prices change, you can exchange money and realize profits or losses.

Advantages: Straightforward, easy to manage.

Disadvantages: Requires full capital upfront, limited currency options, high commissions and spreads, not suitable for short-term trading.

Method 2: Currency Futures Contracts

Standardized products traded on official markets, such as EUR/USD futures on the Chicago Mercantile Exchange.

Advantages: High liquidity, leverage, tradable almost all day.

Disadvantages: Large contract sizes require substantial investment, which may be too high for beginners.

Method 3: CFDs (Contracts for Difference)

Highly flexible trading method—buy and sell contracts representing price differences.

Advantages: High liquidity, 24/5 trading, low initial capital, leverage, short-term profit potential.

Disadvantages: High risk, leverage can lead to losses, requires good risk management.

Choosing the Right Currency Pairs for Beginners

Selection Criteria

Liquidity: High trading volume pairs allow trading at desired prices. This is the first factor to consider.

Volatility: Too low volatility makes forecasting difficult, while too high increases risk. Choose a moderate level suitable for your style.

Trading Hours: Each pair has optimal times for liquidity and volatility, such as local market open hours.

News and Fundamentals: If you want to trade based on news, select currency pairs affected by the news you follow.

Popular Currency Pairs for Opportunity Seekers

EUR/USD: The most liquid pair with moderate volatility, suitable for short to medium-term trading. Highest activity when European and US markets are open.

USD/JPY: Popular pair with good liquidity, low to moderate volatility. Sometimes volatility increases due to Bank of Japan policies. Highest activity during Tokyo and US market hours.

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

How to Teach Forex Trading Step-by-Step for Beginners

Step 1: Choose Currency Pairs and Platform

Start by identifying currency pairs that match your trading criteria. Ensure the platform offers fair spreads and comprehensive analysis tools.

Step 2: Analyze and Enter Positions

Once you have your pair, check current prices and study charts using technical analysis. Then decide:

• Buy: When you expect the currency to strengthen. If correct, profits increase; if wrong, losses increase.

• Sell: When you expect the currency to weaken. If correct, profits increase; if wrong, losses occur.

Step 3: Use Conditional Orders

Set Limit Orders for automatic buy/sell at specified levels, and Stop Loss to limit potential losses.

Step 4: Monitor and Manage Funds

Regularly check your margin level and close positions when profit targets are reached or cut losses according to your plan.

Step 5: Evaluate and Improve

Review each trade to identify mistakes and successes. Trading is a continuous learning process. As Charlie Munger 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 for Forex Traders

Forex trading carries high risk, so be cautious of the following points:

Excessive Leverage

Leverage amplifies both potential gains and losses. You might be forced to close positions if prices move sharply. Choose leverage balanced with your capital and market volatility.

Unprepared for Increased Volatility

Currency prices can move violently due to economic data, central bank meetings, or policy events. Use Stop Loss orders to protect yourself and avoid trading during high volatility periods.

Overtrading

Every trade does not guarantee profit. Frequent trading can lead to losses. Follow your planned opportunities only.

Summary for Those Who Want to Learn Forex Trading

Forex trading offers enormous opportunities for those with knowledge and discipline, especially through CFDs that require less capital and offer flexibility.

This market welcomes various strategies, from short-term speculation to hedging. By following fundamental principles, managing risk, and continuously learning, you can develop into a successful Forex trader.