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Forex Basics: How Does Forex Trading Work? Understanding the Fundamentals of Forex Trading

July 30, 2025
roger_admin

As one of the largest and most liquid financial markets in the world, forex trading reaches a staggering daily trading volume of USD 6.6 trillion, attracting countless investors. Yet, for many beginners, the question remains: How does forex trading actually work? And is it really as high-risk and difficult to master as people say?

This article will guide you step by step through the structure and mechanics of the forex market, helping clear away doubts during your learning process. Whether you are a beginner or a trader with some experience, you will find practical insights and strategies here.

What Are the Basics of Forex Trading?

The core of forex trading is exchanging one currency for another, known as a currency pair.

For example:

  • EUR/USD (Euro/US Dollar) represents how many US dollars are needed to purchase one euro.

Each currency has a standard abbreviation, such as EUR for the euro and USD for the US dollar. By observing the price of these pairs, traders can assess the exchange rate and make buy or sell decisions.

Since forex prices are determined by market supply and demand, they fluctuate 24/7, creating abundant opportunities for traders.

📌 Pro Tip: Always check real-time exchange rates from trusted forex websites before trading.

What Does Buying and Selling a Currency Pair Mean?

In forex trading:

  • Buying a currency pair: You expect the base currency (the first one) to appreciate.

  • Selling a currency pair: You expect the base currency to depreciate.

Example:

  • If you believe the euro will strengthen against the US dollar, you buy EUR/USD.

  • If you expect the euro to weaken, you sell EUR/USD.

Correctly identifying market trends is essential and a fundamental skill every trader must develop.

What Is a Spread in Forex Trading?

The spread is the difference between the buying price (bid) and the selling price (ask). It is measured in pips (points in percentage).

For example:

  • Buy price: 1.0740

  • Sell price: 1.0736

  • Spread = 0.0004 = 4 pips

While small per trade, spreads add up and can significantly affect long-term profits. Understanding spreads helps traders better predict profit/loss points and trading strategies.

What Are Margin and Leverage in Forex?

  • Margin: The minimum amount of capital required to enter a trade.

  • Leverage: Allows traders to control a large position with relatively small capital.

Example:
With a 0.5% margin ratio, you only need 500 MYR to control a trade worth 100,000 MYR.

🔺 Risk Alert: While high leverage can maximize profits, it also magnifies losses. Beginners should use it cautiously.

Is Forex Too Complicated for Beginners?

Forex markets are fast-moving and information-heavy, which can overwhelm new traders. The good news is that AI-powered trading systems can help.

Benefits of AI Trading Programs:

  • 24/7 market monitoring

  • Automated analysis and execution

  • Removes emotional bias and human error

For beginners, combining personal judgment with AI-assisted systems can accelerate learning and improve results.

Join Our 3-Hour AI Auto-Trading Program

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  • Apply Flash, S10, SMA, MKD, and Dragon Wave for real market profits

  • Adapt auto-trading systems to Malaysia’s unique financial environment

  • Achieve more accurate, faster, and safer trading automation

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    Frequently Asked Questions

    Traditional trading relies on human decision-making, which can be influenced by emotions and subjectivity. In contrast, algorithmic trading uses computer programs to make decisions based on quantitative data, removing the emotional aspect and allowing for faster and more precise trade execution.
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    We start from the basics and explain the essential concepts and methods of algorithmic trading. You don't need prior market experience, and even beginners can easily grasp the concepts.
    We start from the basics and explain the essential concepts and methods of algorithmic trading. You don't need prior market experience, and even beginners can easily grasp the concepts.
    We start from the basics and explain the essential concepts and methods of algorithmic trading. You don't need prior market experience, and even beginners can easily grasp the concepts.
    We start from the basics and explain the essential concepts and methods of algorithmic trading. You don't need prior market experience, and even beginners can easily grasp the concepts.
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