How beginner investors should trade Forex in 2025

What is Forex and Why Is It Gaining Attention

The foreign exchange market (Forex) is the largest financial market in the world by trading volume. In 2024, this market recorded an average daily trading volume of $7.5 trillion USD. With immense liquidity and a variety of trading tools, forex trading is an accessible investment avenue for investors at all levels.

Basic Understanding of Forex Trading

Forex trading refers to the buying and selling of foreign currencies by comparing two different currencies, known as “currency pairs” (Currency Pairs). For example, USD/THB means the US dollar against the Thai baht. In this pair, the first currency (USD) is called the “Base Currency,” and the second (THB) is called the “Quote Currency.”

When an investor buys the USD/THB pair at 35.00, it means buying 1 dollar by selling 35 baht. Conversely, selling this pair means selling 1 dollar and buying back baht.

It is important to understand that forex trading differs from trading CFDs on other assets such as gold, individual stocks, or indices. Forex focuses solely on currency trading.

Advantages of Forex Trading

• Top Liquidity: Investors can buy and sell at desired prices and amounts easily, enabling quick profit-taking or position changes.

• Multiple Trading Hours: The forex market is open nearly 24/5, allowing investors to choose convenient times to trade.

• Various Opportunities: Many currency pairs are available for trading, and profits can be made in both rising and falling markets.

• Flexible Investment: Can be used for speculation or hedging against risks.

• Leverage Benefits: Investors can use (Leverage) to amplify potential profits.

Factors Affecting the Forex Market

Exchange rate volatility is influenced by several factors:

• Central Bank Policies: Adjustments in interest rates and monetary policies can quickly impact currency values, especially from major economies like the US, Japan, and Europe.

• Economic Data: Inflation, employment, and current account figures indicate economic strength and currency health.

• International Investment Flows: Changes in trade policies, elections, and global investment climates affect capital inflows and outflows.

• Global Market Conditions: Oil prices, stock indices, and bond prices can influence specific currency pairs.

• Demand for Safe-Haven Assets: During crises, investors tend to buy dollars or yen, which are considered safer.

Popular Forex Investment Types

Spot Market(

This is the most straightforward method where investors exchange one currency for another, and realize profits or losses as prices fluctuate. However, this requires full capital investment, limited currency options, and incurs high exchange fees, making it less suitable for short-term trading.

) Futures###

Futures contracts are standardized and traded on official exchanges, such as EUR/USD on CME in Chicago. With high liquidity and the ability to use leverage, they are a popular choice. However, the contract sizes are often large, which can be a barrier for retail investors.

( CFDs on Currencies)

Contracts for Difference (CFDs) offer high flexibility. Investors can trade almost 24/5, use leverage, and require less initial capital. Many traders prefer this for short-term trading. However, CFDs carry high risks, especially when using high leverage, which can lead to losing more than the invested capital.

Suitable Currency Pairs for Beginners

Beginner investors should consider the following factors when choosing currency pairs:

• Liquidity: High trading volume pairs provide better prices and lower costs.

• Volatility: Too little volatility makes timing difficult, while too much increases risk.

• Trading Hours: Each pair has optimal trading times, such as regional market openings.

• News and Fundamentals: Traders following news may prefer pairs affected by specific economic events.

Popular pairs for beginners:

• EUR/USD: Highest liquidity, moderate volatility, suitable for short to medium-term trading. Most active when European and US markets are open.

• USD/JPY: Good liquidity, low to moderate volatility, influenced by Bank of Japan policies. Active during Tokyo and US market hours.

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

Forex Trading Steps for Beginners

Step 1: Choose the Right Currency Pair

Select a pair that matches your trading style, considering liquidity, volatility, and trading times.

( Step 2: Analyze Price and Open Positions

Check current prices using technical or fundamental analysis, then:

• Place Buy Orders: When expecting the currency to strengthen. If the price rises, you profit; if it falls, you lose.

• Place Sell Orders: When expecting the currency to weaken. If the price drops, you profit; if it rises, you lose.

) Step 3: Set Exit Conditions

Use Stop Loss orders to automatically close positions at a set loss level, and Take Profit orders to lock in gains when the price reaches your target.

Step 4: Monitor and Close Positions

Keep track of your margin level and wait until the price hits your target. Close the position to realize profits.

Step 5: Learn and Improve

Review each trade, identify mistakes, and use lessons learned to improve future trades. Trading is an ongoing process requiring practice. Once you find effective strategies, learn to repeat them systematically.

Risks to Avoid

Overleveraging

Leverage can amplify profits but also increases risks. Using high leverage can lead to losing your entire investment if the market moves against you. Choose leverage levels appropriate to your volatility tolerance and capital.

Not Preparing for Volatility

Currencies are highly volatile, especially around major economic data releases or central bank meetings. Have a plan for such events, including setting Stop Loss orders and avoiding high-risk periods.

Excessive Trading

Frequent trading can lead to losses. Trade only according to your plan and avoid impulsive opportunities.

Summary

Forex trading is an attractive investment channel for knowledgeable investors, especially CFDs, which require less capital, offer high flexibility, and support various strategies. The forex market provides opportunities for profit, testing new strategies, and diversifying investment portfolios. However, understanding the risks, having a clear trading plan, and learning from experience are essential for success in this market.