Basic Forex Knowledge You Must Know Before Starting Trading

Foreign Exchange Market: Opportunity or Trap for Investors?

The forex market (FX trading market) is the largest financial playground on the planet, but it is also the most prone to misunderstandings. On the internet, you can find countless pieces of information about forex trading experiences from various sources. However, most of these pieces of information are subjective, unverified, and can lead to misconceptions about the true nature of forex trading.

Even experienced traders are not immune to disappointing results if they do not truly understand the essence of the market. So, what truths about forex trading do you need to know? This article will clarify the 10 most important points, helping you build a solid trading mindset.

What Is Forex Trading?

Forex trading is the buying and selling of currency pairs on the international market. In the past, it was a playground reserved for governments, large financial institutions, multinational corporations, and investment funds. To allow individual investors to participate, they need to go through an intermediary called a broker or trading platform.

A broker provides a (trading platform) where you can place Buy (Buy) or Sell (Sell) orders. The forex market has extremely high liquidity, operates 24/7, and supports T+0 trading (executed immediately), unlike domestic stock markets with T+2 cycles. You can trade nearly 60 different currency pairs such as EUR/USD, GBP/USD, and many others.

The 10 Most Misunderstood Facts About Forex Trading

1. Forex Can Make You Rich Quickly - But Not Sustainably

It is true that some skilled traders have accumulated wealth from forex, but the key is gradual, step-by-step growth. Successful traders understand that the market is constantly fluctuating, requiring continuous mental engagement and maintaining a strong psychological state. If you become impatient or complacent, the market will quickly take away all your profits, even your initial capital.

2. The Forex Market Is Not a Scam, But Dishonest Brokers Exist

The forex market is officially legal, but the problem lies with untrustworthy brokers. Due to the lively nature of the market, there are many scammers impersonating brokers to lure investors. They may accept your deposits but refuse to allow withdrawals. Therefore, before trading, take the time to research the credibility of the trading platform you choose.

3. You Don’t Need to Be a Millionaire to Start

Basic forex knowledge includes understanding pip - the smallest profit unit in forex. For example, 1 pip of EUR/USD equals 0.0001, so if you buy 100,000 EUR, you profit only 10 USD. However, thanks to leverage (leverage) tools, you can control 100,000 EUR with only about 100 EUR of actual capital. This means you don’t need to be a billionaire to participate in the market.

4. Forex Is Not Just for Short-Term Speculators

Although forex is famous for high leverage, monetary history proves that long-term trends exist. Buy and Hold (strategies of buying and holding) are also entirely feasible in forex. Currencies can even be considered an investment for diversification or risk hedging. That’s why governments and large banks also stockpile foreign currencies.

5. Predicting Trends Is the Goal, But Not a Magic Formula

Theoretically, accurately predicting trends can bring profits. However, predictions can also blind you and lead to impulsive trades without confirmation. If your prediction is wrong, an unaccepting psychological state may cause you to repeat mistakes. A better approach is to wait for price movements to confirm your prediction before acting.

6. Whether Prices Rise or Fall, You Have a Chance to Win

Forex price charts are full of wave fluctuations. Whether prices go up or down, you can profit from Long (mua) or Short @E0=bán( positions. However, it’s crucial to always set a Stop-Loss order to limit losses. If you place a wrong Long position, wait for the price to go back up instead of trying to turn the position around, but have a maximum loss threshold to accept and withdraw.

) 7. Old Strategies Still Have Value

The forex market is constantly changing, but history always repeats itself. Instead of constantly changing strategies, you should build a collection of proven short-term and long-term strategies. The key is to truly understand each strategy. The best forex strategies are simple, easy to understand, and easy to apply.

8. Small Percent Gains Accumulate Over Time

Successful traders never expect huge profits from a single trade. Instead, they focus on market analysis, continuous trading, and accumulating small percentage gains on each position. However, this does not mean trading more is better. Many newbies make the mistake of overtrading - opening too many positions to catch every small fluctuation. Remember, the more you trade, the higher the fees and the more margin is consumed. Instead, spend time analyzing carefully to make accurate Buy-Sell decisions.

9. Forex Is Not Only for Financial Experts

Initially, forex was truly a playground for large financial institutions due to its complexity and macroeconomic influences. However, many individual traders without a financial background have succeeded. The secret is investing time to learn about the forex market, gaining experience from real trades, and most importantly, not getting discouraged by initial failures.

10. Learn from Experts but Take Responsibility Yourself

When starting out, actively interact with experienced traders to learn. However, experts are not infallible—they also make mistakes and their forecasts are not always accurate. Receive information critically, but most importantly, recognize that you are responsible for every trade you make, not anyone else.

Is Forex Worth the Risk?

Compared to traditional stock investing, forex can offer higher profits. While stocks may yield only 10-20% annually, you can achieve this level of return in forex within a few weeks or even days. Of course, the risks are proportionally higher.

Today, many risks across fields can be managed with appropriate tools. If you love challenges, have a strong mindset, and know how to manage risks effectively, forex is a suitable playground for you.

To participate, you need to choose a reputable trading platform. Selecting a broker is choosing a partner for your forex trading journey. A trustworthy platform with low trading costs will help minimize risks and maximize profits. Professional brokers often offer a wide range of assets including forex, indices, commodities, stocks, and cryptocurrencies within a single account.

Conclusion

The truths about forex trading are much more than what this article can list. To succeed in the market, you need to understand its true nature to avoid unnecessary disappointments. Forex information is everywhere, and if you only believe what’s on the internet without a solid foundation, you will push yourself toward failure.

Take the time to systematically learn about the forex market, build a trading strategy that suits your abilities and personality. This way, you will have a solid foundation to step into forex trading with confidence and without excessive worry about misinformation.