What is Forex? Basic understanding that beginners need to know 2568

The foreign exchange market (Forex) is considered the largest financial market in the world. Data from 2024 shows that the average daily trading volume worldwide is approximately 7.5 trillion US dollars. With high liquidity and a variety of trading tools, Forex is accessible to beginners, but before starting, it is important to understand the basic principles.

What is Forex and Basic Trading Techniques

Beginner Forex Trading starts with understanding what the foreign exchange market is. Each currency does not have a fixed price; instead, prices are determined by comparison with other currencies, called “Currency Pairs” (Currency Pairs), such as USD/THB.

In the USD/THB pair, the first currency (USD) is called the Base Currency, and the second (THB) is called the Quote Currency. When you buy the USD/THB pair at 35.00, it means you are buying 1 USD while selling 35 THB.

If we talk about USD/JPY at 160.00, it means buying 1 US dollar by selling 160 Japanese Yen. CFD trading is just one way to trade, but Forex can also include trading real currencies, futures, or other instruments.

Advantages of Forex Trading for Beginners

The popularity of the Forex market comes from several advantages:

High Liquidity allows for easy trading at desired volumes and prices. This is a key condition for effective speculation.

Flexible Trading Hours The market is open almost 24/5, allowing traders to choose convenient times.

Various Opportunities There are many currency pairs, and profits can be made from both rising and falling markets.

Multiple Purposes Besides speculation, Forex can also be used for hedging investment portfolios.

Leverage (Leverage) Using borrowed funds enables traders to control larger amounts with a small initial capital.

Factors Affecting Currency Volatility

Beginner Forex traders should understand where currency volatility comes from:

Central Bank Policies Setting interest rates and money supply by central banks has the greatest influence on currency values, especially those of major economies.

Economic Data Indicators such as inflation rates, balance of payments, and employment statistics indicate the strength of a currency.

Capital Flows When political changes, trade policies, or elections occur, investments tend to move across borders.

Global Market Conditions Changes in stock markets, bond markets, and commodity prices affect currency values.

Safe-Haven Seeking During risky situations, currencies like USD and JPY tend to see increased demand.

How to Trade Forex Suitable for General Investors

There are three main formats accessible to (non-institutional) investors:

Trading Real Currency in the Spot Market

This is a straightforward method—exchanging one currency for another. When exchange rates change, you can convert back to realize profits or losses.

Advantages: Simple, no complicated requirements.

Limitations: Requires full payment, limited currency options, storage costs, and often expensive exchange rates. Not suitable for short-term trading.

Currency Futures Contracts

Futures trading is a standard instrument traded on official markets, such as Thailand’s TFEX or the Chicago Mercantile Exchange.

Advantages: High liquidity, easy to trade, leverage, and can be traded almost all day.

Limitations: Contract sizes are often large, requiring substantial investment, and may not be accessible to retail investors.

###CFD Contracts(

CFDs are derivative instruments that give rights to profit from price differences without owning the actual currency.

Advantages: Highly flexible, tradable nearly 24/5, leverage, low capital requirement, suitable for short-term trading.

Limitations: High leverage increases risk, potential forced liquidation, and requires good risk management.

Which Currency Pairs Should Beginners Choose

Choosing the right currency pair can make success easier. Consider:

Liquidity Popular pairs with high liquidity allow trading at desired prices.

Volatility Too low volatility makes timing difficult; too high makes risk control hard.

Trading Hours Although the market is open 24/5, each pair has optimal trading times, such as local market openings.

Fundamental Factors Traders following news can select pairs affected by specific news.

For beginners, main pairs include:

EUR/USD Highest liquidity, moderate volatility. Suitable for short- and medium-term trading. Most active during European and US market openings.

USD/JPY Good liquidity, low to moderate volatility. Can be more volatile due to Japanese bank policies. Most active during Tokyo and US market hours.

GBP/USD Good liquidity, high volatility. Influenced by UK-specific factors. Most active during European and US market hours.

Steps for Beginners to Trade Forex

Although it may seem complex, with study and practice, Beginner Forex Traders can start by following these steps:

1. Choose the currency pair

Select a pair that meets your trading criteria, considering liquidity, volatility, and your investment style.

2. Open a trading position

Check current prices, analyze technical charts on your platform, and decide whether to buy or sell.

• Buy Order: When you think the currency will strengthen. If correct, profits increase as the price rises.
• Sell Order: When you think the currency will weaken. If correct, profits increase as the price falls.

3. Set order conditions

Use Limit Orders to buy or sell when prices meet your criteria, and set Stop Loss to automatically close the position if losses reach a predetermined level.

4. Monitor and wait to close

Track price movements, especially margin levels, and close positions to realize profits or cut losses as planned.

5. Evaluate and improve

Review each trade, identify mistakes, and learn lessons for future trades. Trading is a repetitive process; if you find a successful method, keep doing it.

Warnings for Beginners

Forex trading carries high risk, especially when using leverage. Be cautious of:

Over-leveraging High leverage can amplify profits but also increases the risk of forced liquidation. Choose leverage levels balanced with volatility and your capital.

Unprepared for volatility Currency prices are highly volatile, especially during central bank announcements, economic data releases, or major events. Set stop-loss points and avoid high-volatility periods.

Over-trading Frequent trading without a plan can lead to unnecessary risks and losses. Trade only with clear plans.

Lack of risk management Risks must be managed strictly. Always set Stop Loss and limit the amount per trade.

Summary

Forex for beginners may seem complicated at first, but the basic principles are simple once you understand the fundamentals. Forex is a popular market among investors worldwide, especially CFD trading, which requires less capital, offers flexibility, and supports various strategies.

This market provides opportunities for traders to seek profits, test new strategies, and diversify their investment portfolios conveniently. However, always remember that risks are inherent. Therefore, education, planning, and risk management are key to successful Forex trading.