Forex is the world’s largest financial market with a daily volume of $6.6 trillion (BIS 2023 data), and exchange rate spreads are made by traders when they purchase and sell currency pairs such as EUR/USD. In the case of EUR/USD, if the exchange rate rises from 1.0800 to 1.0850, the purchase of 1 standard lot (100,000 euros) can make a profit of $500 (one point is equal to $10). New traders have access to the market with as little as 0.01 lot ($1,000 contract) through something like MetaTrader 4, quite often with leverage levels of 1:100 (such as that offered by XM brokers), but high leverage also greatly amplifies risk – a 1% movement in the opposite direction can mean a 100% loss of initial capital.
The foreign exchange market is available 24 hours (Sydney, Tokyo, London, New York time relay), the highest liquidity is in the London time (35%), when the EUR/USD spread can be 0.1 points (cost 1 USD/standard lot). With respect to IG Group numbers, the tenure cycle for the average retail trader in 2023 will be 2.7 days, however intra-day trading has 68%, and high-frequency algorithmic trading (HFT) processes millions of orders per second, contributing to 70% of total market volume. Beginners should pay attention to the slippage risk: In March 2020’s novel coronavirus outbreak, the USD/JPY fluctuated 400 points within 1 minute, and even some orders with deviations above 50 points were executed.
Risk management is the key to the survival of forex. Stop-loss tools can limit losses, e.g., setting a 2% principal risk rule (account $10,000, one loss limit of $200), if trading GBP/USD (point value $10 / point), the stop loss has to be set above the entry price of 20 points. The FCA survey showed that 76% of retail traders had losses, mainly due to over-leveraging (using an average of 1:50 leverage) and emotional trading. Algorithmic techniques such as grid trading (placing hanging orders every 20 points) may be profitable in turbulent markets, but in 2022 USD/CHF dropped 8% overnight because of SNB intervention, which led to a 300% increase in the rate of exposure of such techniques.
Regulatory compliance determines the safety of funds. U.S. NFA-regulated brokers are required to maintain $5 million in net capital and leverage is capped at 1:50 (major currency pairs), while offshore platforms (such as the Seychelles regulation) can offer 1:1000 leverage but have weaker bankruptcy protection. Swissquote was fined CHF 2.5 million in 2021 for price deviation execution, highlighting the importance of choosing a platform that is approved by top regulators such as the FCA and ASIC.
Practice and education are blended to enhance the winning rate. Free training like Babypips incorporates both technical analysis (e.g., the MACD golden Cross) and fundamentals (non-farm payrolls release), and historical backtests indicate that accounts using a “trend following strategy” in 2020-2023 have a median annualized return of 15%, but volatility of as much as 40%. Demo accounts (such as OANDA’s 100,000 virtual dollars) allow for experimentation without cost, but the psychological tension of the live trade is light years different – 80% of the demo winners actually lost money in the first month.
Volatility of the forex relies on central bank policy and geopolitics. The 2022 Russia-Ukraine war had led to a 3.5% one-week fall in the EUR/USD, but the rate hike frenzy by the Fed (525 basis points aggregate rate hikes from 2022 to 2023) pushed the dollar index from 89.2 to 114.8. Beginners need to track interest rate announcements (e.g., the ECB monthly decision) and the economic calendar: the January 2023 non-farm payrolls report beat estimates (+517,000 vs estimates 185,000) sent the USD/JPY up 120 points in a flash.
Technology tools support improved decision-making. TradingView provides 85 technical indicators (RSI overbought level 70), and AI forecasting models such as Bloomberg GPT have a 62% accuracy in direction prediction for EUR/USD for 7 days (2023 backtest data). eToro, a social merchandising platform, allows the TOP 10 traders to replicate their strategies (21% annual returns), but ranking volatility shows that the top 10% have a six-month retention rate of only 35%.
In short, forex is highly liquid and flexible trading for novices, but they must pay attention to the risks – through simulation training, strict risk control and continuous learning, continuously improve the win rate from the industry average of 24% to more than 55% at the professional level, in an attempt to reap the dividend in the $6.6 trillion market.