Forex Market for Traders: From Basics to Effective Strategies

The Forex market is considered one of the highest volume financial markets in the world. In 2024, the average daily trading volume worldwide is approximately $7.5 trillion USD. Due to its inherently high liquidity and diverse trading instruments, it opens opportunities for investors of all levels.

Basic Knowledge Every Trader Must Understand

What is Forex really

Forex or currency trading involves buying and selling currency pairs. Currencies do not have intrinsic value themselves, but their prices are determined relative to other currencies, called “Currency Pairs,” such as USD/THB.

When you buy the USD/THB pair at 35.00, it means you are purchasing 1 US dollar using 35 Thai Baht. In the USD/JPY pair at 160.00, it means buying 1 dollar with 160 Yen.

Importantly, it’s essential to distinguish: Forex refers specifically to trading currencies only, although sometimes this term is also used to include trading CFDs on other assets like gold, individual stocks, or indices.

Why do traders favor the Forex market

1. High liquidity - Allows you to enter and exit positions as desired
2. Flexible trading hours - Open for trading approximately 24/5, enabling you to choose suitable times
3. Various opportunities - Hundreds of currency pairs to choose from, with profit potential in both bullish and bearish markets
4. Leverage benefits - Can amplify the potential of your capital
5. Risk management tools - Can be used to hedge investment portfolios in foreign assets

Factors Driving Currency Value Changes

The Forex market does not move randomly but is driven by precise forces:

Central Bank Policies - The most influential factor, through setting interest rates and controlling money supply. Central banks of major countries like the US, Japan, and the Eurozone have the greatest influence on the market.

Economic Indicators - Inflation data, balance of payments, employment figures, and others are components of central banks’ monetary policy plans.

International Investment Flows - Changes in trade policies, elections, and political shifts affect capital flows.

Other Markets - Stock markets, bonds, commodities all have relationships with currencies. For example, rising oil prices often strengthen USD/CAD.

Safe-Haven Currencies - During uncertain market conditions, currencies like the US dollar and Japanese Yen tend to be in higher demand.

Different Types of Forex Investments

Retail investors mainly have three options for trading:

Spot Market(

This is the most straightforward method: selling one currency to buy another, waiting for the exchange rate to change, then converting back to realize profit.

Advantages: Simple, uncomplicated Disadvantages: Requires full capital upfront, limited currency options, high fees, not suitable for short-term trading

) Futures Contracts###

Standard contracts traded on official markets such as TFEX (Thailand Futures Exchange) or CME (Chicago Mercantile Exchange)

Advantages: Good liquidity, leverage, tradable almost all day Disadvantages: Contract sizes are specific, may require large capital

CFDs(

Derivative contracts that give rights to profit from price differences without owning the actual asset

Advantages: Highly flexible, low initial capital, tradable nearly 24/5, leverage Disadvantages: Can involve high leverage, risk of forced liquidation

Criteria for Choosing Currency Pairs

) Key decision factors

Liquidity - Popular pairs with high liquidity tend to have less deviation from expected prices. Choosing high liquidity pairs is a good starting point.

Volatility - Too low volatility makes timing difficult; too high makes risk harder to control. Select a level that matches your risk appetite.

Appropriate Timing - Although the market is open almost continuously, each pair has specific times of high liquidity and volatility.

News and Fundamentals - Traders following news should monitor central bank announcements and economic events affecting their chosen pairs.

“Main” currency pairs for beginners

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

USD/JPY - Popular, good liquidity, low to moderate volatility, but can increase due to Japanese central bank decisions. Moves most during Tokyo and US market hours.

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

Step-by-step Guide to Trading Forex

Step 1: Select Currency Pairs

Choose pairs with complete data, sufficient liquidity, and volatility matching your skill level. Ensure your orders align with your trading plan.

( Step 2: Analyze and Open Positions

Study current prices and price movements via technical charts. Then place orders:

Buy Order - If you expect the currency to strengthen. If correct, profits increase as the price rises.

Sell Order - If you expect the currency to weaken. If correct, profits increase as the price falls.

) Step 3: Set Safety Levels

Use Stop Loss orders to protect against unlimited losses. Use Take Profit orders to lock in gains when targets are reached.

Step 4: Monitor and Adjust

Observe margin levels and price movements. Be prepared to modify positions or close contracts according to your plan.

Step 5: Review and Learn

After each trade, analyze what worked and what didn’t. Trading is a continuous learning process. As Charlie Munger said: “When we find something that works well, we do it over and over. That’s the basic step to success.”

Risks to Be Aware Of

Reckless Use of Leverage

Leverage can amplify profits, but when the market moves against you, it also magnifies losses. Leverage levels should match market volatility and your capital size.

Unpreparedness for Volatility

The Forex market is highly volatile, especially around central bank announcements, economic events, or market openings. Lack of preparation can lead to significant losses. Always set appropriate Stop Loss levels.

Overtrading

The fast pace of Forex can cause traders to panic and make impulsive decisions. Excessive trading increases risk exposure and transaction costs. Trade only during planned times.

Lack of Fundamental Knowledge

Understanding the currency pairs traded, economic factors influencing currencies, and risk management experience are essential. Problems often stem from inadequate preparation.

Summary

The Forex market offers good opportunities for investors with proper planning and knowledge, especially through CFDs that require low initial capital and offer high flexibility.

The key is to understand the basics, learn from mistakes, manage risks carefully, and continuously improve. Forex is not a quick way to supplement income but a skill requiring dedicated learning and practice.

If you decide to enter, prepare yourself with knowledge, virtual account experience, and disciplined trading habits. The Forex market can be an exciting arena for those ready to take the challenge.