How to trade Forex? A beginner's guide to currency trading in 2025

The foreign exchange market (Forex) is considered one of the most actively traded financial assets in the world. In 2024, the average daily trading volume is approximately $7.5 trillion USD. With high liquidity and a variety of trading tools, new traders can enter this market and seek profit opportunities with relative ease. This article will clarify how to trade Forex clearly and introduce the Forex trading process suitable for beginners.

Basic Knowledge to Understand Before Entering the Forex Market

What is Forex trading?

Forex trading involves buying and selling foreign currencies, where each currency does not have an independent price but is usually priced relative to others. This is called currency pairs (Currency Pairs), such as USD/THB, which consists of a base currency (Base Currency) and a quote currency (Quote Currency).

When a trader buys the USD/THB pair at 35.00, it means buying 1 USD by selling 35 THB simultaneously. Similarly, buying USD/JPY at 160.00 indicates buying 1 USD by selling 160 JPY.

Sometimes, the term Forex is used broadly to refer to trading derivatives such as gold, individual stocks, or other stock indices. But in short, Forex is the trading of currencies that can be conducted through various instruments, from spot trading (Spot Trading) to futures and contracts for difference.

Why is the Forex market popular?

This trading market attracts traders worldwide due to several advantages:

1. Market Liquidity - The daily trading volume allows traders to buy and sell at desired prices with full flexibility, opening opportunities for speculation.

2. Flexible Trading Hours - The market is open nearly 24/5, allowing traders to choose times that fit their schedules.

3. Diverse Market Conditions - Many currency pairs are available, enabling traders to profit from both rising and falling markets.

4. Versatile Applications - It can be used for speculation or as a risk management tool for portfolios invested in foreign assets.

5. Leverage Advantage - Trading through derivatives offers leverage, amplifying the potential of invested capital.

Factors Driving Exchange Rate Changes

The Forex market is influenced by multiple factors affecting currency volatility:

Central Bank Policies - The most rapid and impactful influence, through adjusting interest rates and money supply management, significantly affecting economies of major countries like the US, Japan, and Europe.

Economic Indicators - Data such as inflation, balance of payments, employment figures inform about the economic strength and currency potential.

International Capital Flows - Changes in trade, policy agreements, elections influence cross-border investment movements.

Global Market Conditions - Changes in stock markets, bonds, and commodities can specifically impact currencies; for example, rising oil prices can influence USD/CAD.

Systemic Risks - During crises, safe-haven currencies like the dollar and yen tend to see increased demand.

Types of Forex Investment

Retail investors can access the Forex market mainly through 3 methods:

Trading Real Currencies in the Spot Market (Spot Market)

This straightforward method involves exchanging one currency for another. When exchange rates change, traders can convert back to realize profits or losses.

While simple, it has limitations such as requiring full capital upfront, limited currency pairs, custody costs, and high spreads or transaction fees, making it less suitable for short-term trading.

Currency Futures Trading

Futures trading is a standardized, exchange-traded option, such as USD futures on Thailand’s TFEX or EUR/USD futures on CME in Chicago (CME).

Advantages include high liquidity, easy online trading, leverage, and nearly 24-hour trading. However, contract sizes and initial capital requirements can be high, which may be a barrier for retail investors.

CFD Trading on Currencies

Contracts for Difference (CFDs) offer high flexibility, allowing traders to speculate on price differences with high liquidity, nearly 24/5 trading, leverage benefits, and low initial capital. This method is popular among traders seeking low investment and short-term profits.

However, due to the possibility of high leverage, the risk of price volatility and forced position closures is significant. Traders should implement adequate risk management.

Tips for Choosing Currency Pairs for Beginners

Selecting the right currency pairs increases success chances. Consider the following factors:

Trading Volume and Liquidity - Popular pairs with high liquidity facilitate trading at desired prices.

Volatility Level - Low-volatility pairs may limit opportunities, while high volatility makes risk control harder. Choose pairs with moderate volatility.

Timing - Although the market is open 24/5, each pair has different liquidity and volatility depending on regional market hours, e.g., during market openings in different regions.

News and Data Factors - Forex markets react quickly to news. Traders following news can select pairs affected by current events.

Recommended Pairs for Beginners:

• EUR/USD - Highest liquidity, moderate volatility, suitable for short- and medium-term trading, most active during European and US market hours.

• USD/JPY - Good liquidity, low to moderate volatility, may increase during Bank of Japan policies, active during Tokyo and US hours.

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

Basic Forex Trading Process

For beginners, Forex trading may seem complex initially, but with continuous learning and practice, traders can develop effective systems. Here are the basic steps:

Step 1: Define Target Currency Pair

Choose a currency pair that matches your trading conditions and investment style. For beginners, pairs like USD/JPY are recommended due to narrow spreads and low trading costs. The US dollar is considered the world’s reserve currency, and the Japanese yen is viewed as a safe-haven asset during economic uncertainty.

Step 2: Analyze and Place Orders

Check current prices and analyze technical charts of your selected pair on your trading platform. When ready, place buy or sell orders:

• Buy Order: When you expect the currency to strengthen. If correct, profit increases; if wrong, loss occurs.

• Sell Order: When you expect the currency to weaken. If correct, profit increases; if wrong, loss occurs.

Step 3: Set Risk Management Conditions

Use conditional orders such as Sell/Buy Limit Orders to execute trades at desired levels, and set Stop Loss to automatically close positions if prices move against expectations.

Step 4: Monitor and Manage Positions

Observe price movements and margin levels. Close positions when reaching profit targets or cut losses if the market moves unfavorably.

Step 5: Review and Improve Strategies

After closing a trade, analyze what worked and what didn’t. Trading is a repetitive process. When a strategy proves effective, apply it again. As Charlie Munger said at the Berkshire Hathaway Annual Meeting 2010: “When we find something that works extremely well, we keep doing it. This might be called the basic algorithm of life—doing what works over and over.”

Cautions for Forex Traders

Forex trading carries high risks, especially with leverage. Be aware of the following:

Excessive Leverage - High leverage amplifies both potential gains and losses. Choose leverage levels appropriate to your volatility tolerance and capital.

Not Preparing for Volatility - Currency prices are highly volatile, especially around central bank policy announcements and economic data releases. Failing to prepare, such as not setting Stop Loss or avoiding volatile periods, can lead to large losses.

Overtrading and Impulsiveness - Excessive trading can lead to poor decision-making and losses. Trade only according to your plan.

Summary

All in all, this is how to trade Forex and the Forex trading process that benefits beginners. Forex trading is popular worldwide, especially CFDs, which require low initial capital and offer high flexibility. The market allows traders to experiment with new strategies, generate profits, and manage portfolio risks effectively.