What is Forex (FX)? A Complete Guide for Beginners

“I want to try Forex trading, but it looks complicated...” Have you ever thought that? In this article, we’ll explain FX step by step for beginners who want to start trading. We’ll cover what FX is, its basics, how to get started, and the key points to watch out for.

1. What is Forex (FX)?

FX stands for “Foreign Exchange,” also known in Japanese as “foreign exchange margin trading.” It’s one type of investment where you buy and sell different currencies to aim for profit. For example, imagine trading the US dollar (USD) and Japanese yen (JPY). If you buy dollars at “1 USD = 150 JPY” and later sell when “1 USD = 152 JPY,” the 2 JPY difference becomes your profit. This is the basic mechanism of FX.

Unlike stock trading, where you buy and sell company shares, FX focuses on changes in the value of currencies. Because global forex markets operate 24 hours a day, trading is possible not only during the day but also at night or early in the morning. Being able to trade at your own pace after work or school is one of FX’s key attractions.

2. How do you make profits?

In FX, there are opportunities to earn profits because currency “exchange rates” fluctuate daily. These changes are driven by many factors, such as economic indicators, interest rate movements, and political news.

There are mainly two ways to profit in FX:

For example:

• Buy low and sell high (Long position)

If you expect the price to rise, you place a “buy” order. By buying low and selling high, the difference becomes your profit.

• Sell high and buy back low (Short position)

If you expect the price to fall, you place a “sell” order. You sell first, then buy back later at a lower price to make a profit.

This way, FX allows you to aim for profits not only when prices rise but also when they fall. Unlike stock trading, which usually only allows you to “buy low and sell high,” FX gives you profit opportunities in both directions, allowing for more flexible strategies.

3. What is Leverage?

FX has a unique feature called “leverage.” Leverage allows you to trade larger amounts than the actual funds you hold.

For example, even if you only have 100,000 yen, with 10x leverage, you can trade as much as 1,000,000 yen. This system gives you the chance to aim for bigger profits with a smaller initial investment.

However, it’s not just advantages—there are risks too. Using leverage means that “profits can be larger,” but at the same time, “losses can be larger” as well. For instance, if you are trading 1,000,000 yen, just a 1% market movement results in a profit or loss of 10,000 yen. This could lead to losses greater than your deposit, so it’s very important to set leverage at a level that’s safe for you.

4. How do you start trading FX?

Getting started with FX is easier than you might think. Just follow these steps:

Step 1: Open an account with a broker

Apply for an account on the broker’s website.

Step 2: Deposit funds into your account

After opening the account, choose from several deposit methods and fund your trading account.

Step 3: Start trading

Select a currency pair (e.g., USD/JPY, EUR/JPY) and place a buy or sell order.

5. Key points beginners should watch out for

FX is an attractive investment method, but it also comes with risks. Here are a few important points for beginners to keep in mind:

Set stop-loss rules

It’s important to decide in advance where you’ll cut your losses. Avoid letting emotions keep you in a trade too long and suffering bigger losses. Once you set your acceptable loss, exit firmly at that point.

Avoid excessive leverage

Leverage allows big trades with little capital, but as a beginner, it’s crucial not to set it too high.

For example, with 100,000 yen, 25x leverage lets you trade up to 2,500,000 yen. If the market moves as expected, you can gain large profits—but if not, your losses will balloon just as fast. Even small percentage moves can wipe out much of your capital.

Beginners are especially prone to emotional decisions, such as “it might go higher” or “it might recover if I wait,” leading to bigger losses. That’s why it’s best to start with leverage around 2x–5x and trade in small amounts while learning.

Also, leverage settings aren’t always fully flexible—they can be limited by margin requirements or broker rules. So always understand the risks relative to your funds.

Practice with demo trading

At ECMarkets, we offer a demo account where you can practice with virtual funds. This is a great way to get used to operations and trading systems.

This article also explains how to start FX in detail.

Summary: FX is an investment you can start with little capital

FX can be started with small amounts of capital, and if you understand the system, you can trade while managing risk. At first, the terms and mechanisms may feel difficult, but as you study and practice, you’ll gradually get used to it.

“Just give it a try” is the first step to improving. Start by practicing with a reliable broker’s demo account!