（#FX #forex #chart）What Is FX? An Explanatio from How It Works to Risks and Future Price Forecasts!
"I'm interested in FX as a side business, but it seems a bit difficult..."
"I'm scared of taking a huge loss."
Have you ever thought this way?
As long as you learn the basic rules, the mechanism of FX itself is actually very simple.
However, if you start without knowing anything, there is also a risk of losing your money in the blink of an eye.
In this article,
we will explain everything from the absolute basics, such as the official name of FX, to the necessary preparations, the risks you should know about,
and even forecasted price movements for EUR/USD and USD/JPY that everyone wants to know—all in an easy-to-understand way, using as little difficult jargon as possible!
If you are looking to start FX trading, please be sure to read through to the end.
The Official Name of FX and How "Exchange Rate Gains" Work
First, let's start with the question: "What does FX stand for?"
The official name of FX in English is "Foreign Exchange."
While it literally translates to "foreign exchange,"
the service that we generally trade is more accurately called "Retail Forex" (Retail Foreign Exchange Margin Trading).
When trading under regulatory bodies (such as the CFTC or NFA), the concept of "Margin" is utilized.
Although "margin" sounds like a slightly complicated term,
in short, you can think of it as "a platform where you deposit your available funds as collateral (a security deposit) to buy and sell global currencies almost like using a membership card."
The Source of FX Profits is "Exchange Rate Gains"
The mechanism for making money in FX is simply aiming for "exchange rate gains" (capital gains from currency movements).
To put it simply, exchange rate gains refer to "the profit generated by the difference between the price when you buy and the price when you sell."
Imagine traveling abroad from the United States (a dollar area) to Europe (a euro area).
- 1 EUR = 1.10 USD
Suppose you exchange 1.10 USD into 1 EUR when the rate is 1 EUR = 1.10 USD.
- 1 EUR = 1.20 USD
Later, the euro appreciates against the dollar, bringing the rate to 1 EUR = 1.20 USD.
- Settlement
When you return and exchange that 1 EUR back into US dollars, you get 1.20 USD back.
but as a result, you made a "0.10 USD (10 cents) profit."
In FX trading, you build up profits by repeating these exchange transactions over and over using a computer or smartphone.
Preparations Needed to Start FX Trading
Once you decide, "Alright, let's give FX trading a try!",
the first step is to set up an environment where you can actually trade.
Although it is called preparation, there are virtually no cumbersome procedures like mailing multiple specialized documents;
everything can be completed right on your smartphone or computer.
We have summarized the required preparations to get started in the list below.
- Internet Environment and Device (Smartphone or Computer)
Modern FX trading is done with a single click while viewing an app or browser screen.
As long as you have a smartphone you are used to using, you can check charts (price movement graphs) anytime, anywhere. - An FX Brokerage Account (Account)
Just like depositing money in a bank,
you need to create a "dedicated account" with an FX broker to execute trades.
While there are many domestic and international providers, it is safest at first to choose a major firm with robust customer support and low fees. - Identity Verification Documents
When opening an account, you must submit photos of your identity verification documents (a photo taken with your smartphone is often sufficient).
You cannot open an account without this, so be sure to have them ready in advance. - A Bank Account (For Deposits and Withdrawals)
You need your own bank account to deposit funds into your FX account
and to withdraw money as its value changes.
An account compatible with online banking is extremely convenient, as funds are reflected instantly even at night.
These preparations can be completed as quickly as the same day you apply, making it possible to start trading as early as the next day.
How Much Do You Need to Start FX? Let's Talk "Required Capital"
It is easy to think, "Don't I need thousands of dollars of big money to start investing?",
but FX can actually be started with a fairly small amount.
Specifically how much you need changes dramatically depending on the "minimum trading unit" of the FX broker you choose.
Differences in Required Capital by Trading Unit
FX brokers mainly adopt rules such as "mini lots (10,000 currency units)" or "micro lots (1,000 currency units)."
Among them, there are also ultra-small amount brokers like "OANDA" that allow trading from "1 currency unit (nano lot)."
For example, when starting a EUR/USD trade at a rate of 1 EUR = 1.10 USD,
the minimum required money (margin) is as follows:
Leverage
Due to CFTC/NFA regulations, the maximum leverage for major currencies is 50x (a required margin rate of 2%).
- Mini lot (10,000 units) trading: At least approx. $220+
- Micro lot (1,000 units) trading: At least approx. $22+
- 1 unit trading: At least approx. 2.2 cents+
You might think, "That's reassuring if I can do it from 2.2 cents!",
but this is strictly the "minimum amount according to the rules."
If you start with an overly bare-minimum balance, even a slight market movement against your expectations will trigger
a "forced liquidation (stop-out)," which we will explain later.
For this reason, if a beginner is starting out for practice,
choosing a broker with 1,000 currency units and depositing around $30 to $50 to start
is the most recommended approach both for peace of mind and safe operations.
Must-Know Terms! Basic FX Jargon to Remember
The world of FX is full of unique terms you don't encounter in daily life.
To help you stay calm when looking at news or trading screens, we have summarized the most commonly used basic terms in an easy-to-understand table.
Let's get these definitions sorted out clearly.
| Term | What does it mean in plain terms? |
|---|---|
| Position | Holding currencies in a "bought" or "sold" state. It refers to the cards currently in your hand that haven't been settled yet. |
| Long / Short | Long means "buying," while Short means "selling." You go Long if you think prices will "go up," and Short if you think they will "go down." |
| Spread | The "difference" between the buying price and the selling price. This serves as the practical transaction fee paid to the FX broker. |
| Swap Points | Adjustment payments received (or paid) based on the "interest rate difference" between two countries. If you sell low-interest yen and buy high-interest dollars, you can receive this daily like extra pocket money. |
| Chart | A visual representation using lines or bar graphs to show price movements from the past to the present. Traders analyze this to forecast future price trends. |
| pips | The smallest unit of price movement for a currency. For EUR/USD, 1 pip typically represents "0.0001 dollars (0.01 cents)" in decimals. |
Even if you only remember three basics for now—"Long is buying," "Short is selling," and "Spread is the fee"—
you will face far fewer hurdles when navigating beginner guides or app interfaces.
In the case of "Long / Buy," you make a profit as the chart moves upward.
In the case of "Short / Sell," you make a profit as the chart moves downward.
You Will Likely Lose Money in FX: Mental Preparation and Exit Rules
This is the most important section of this article that we want to convey to you.
You may see enticing headlines in online ads like "Make $5,000 a month easily with FX!",
but let's talk about reality.
The vast majority of beginners who start FX experience a painful loss at least once in their first few months.
In fact, you will lose money initially with a high probability.
This is because you are competing on the same playing field as professional investors without knowing the ropes.
What matters is not searching for a "foolproof way to never lose money,"
but mentally preparing for "how to survive on the assumption that you will take losses."
3 Mindsets Beginners Must Have
- Don't expect to win from the start (Treat it as tuition)
At first, decide that you are doing this to "experience and learn the rules of FX" rather than to "make money,"
and trade only with small amounts of money that will not affect your daily life if lost.
Putting in large sums from the beginning is no different from gambling. - Set a "quick exit" rule before trading
Human nature is a strange thing—when losses start mounting, people tend to escape reality, thinking "it should go back to normal soon..."
In the investment world, this is called "Prospect Theory" (the psychological drive to avoid realizing a loss).
Before clicking the trade button,
set an exit line such as "if losses reach a certain amount, give up automatically and call it game over." - Close your phone when emotions take over
When people suffer a loss, the frustration of losing often makes them think, "I'll win it back in one go!"
Letting emotions take over and placing excessively large bets is called "revenge trading."This is a one-way ticket to 100% financial ruin.
Precisely when you lose, you need the composure to quietly close your screen and sip a warm cup of tea.
The Last Line of Defense for Your Wealth: How "Stop-Outs" Work
In the previous section, we discussed "exiting quickly when you take a loss,"
but FX comes equipped with a safety feature that forcibly ends the game when you can't bring yourself to give up on your own.
That is the "stop-out" (forced liquidation).
A stop-out is
an automated safety mechanism where the FX broker forcibly terminates your trades to prevent your funds from dropping to zero or going negative
when your losses (unrealized losses) expand too much and your deposited funds (margin) fall below a specified threshold.
The Safety Line of a Stop-Out
When a stop-out occurs, your original capital drops to about half or a quarter of what it was.
Even with losses, it stops at around half to a quarter of your balance.
What truly matters is the size of your original capital.
Was it a year's worth of savings,
a lump-sum retirement payout,
a decade's worth of hard-earned savings,
or simply the price of a single lunch?
Even if you lose the equivalent of a single lunch,
it is not a devastating loss in the grand scheme of life.
So what about beyond that?
Pouring a year's worth, or even more than a decade's worth of funds into FX, only to face a stop-out
that slashes your balance down to a quarter or less.
That is a painful, heavy loss.
FX Currencies: EUR/USD : USD/JPY Comparison & Trends
From here, let's look at specific scenarios and make currency forecasts.
Knowing whether a currency is likely to move up or down provides a sense of reassurance when trading.
EUR/USD (Euro / US Dollar)
Driven by the economic divergence between the US and Europe, the pair is expected to face range-bound price action with heavy upside resistance.
While EUR/USD is the most heavily traded currency pair in the world,
it fundamentally moves based on the balance of power between "US economic trends" vs. "European Central Bank (ECB) monetary policy and economic indicators."
Recently, pulled by US dollar strength, it has shifted from around $1.18 down to the $1.14 level,
entering a correction phase of "Euro weakness / US Dollar strength (downward chart movement)."
- Factors for Upside (Euro Strength / Dollar Weakness)
US Economic Slowdown
If US employment and inflation indicators soften,
prompting the Fed to shift toward aggressive rate cuts,
it will trigger dollar selling and push EUR/USD higher. - Factors for Downside (Euro Weakness / Dollar Strength)
Stagnation in the European Economy
If the pace of economic recovery in the Eurozone (led by Germany) remains sluggish,
the ECB will lean toward rate cuts, increasing selling pressure on the Euro.Geopolitical Risks & Energy Issues
Nearby geopolitical risks in Europe and persistently high energy costs will remain a constant weight on the Euro.
Short to Medium-Term Direction: Range-Bound Market Between $1.12 and $1.16
With US dollar strength currently dominating, the EUR/USD pair is in an environment where it is somewhat easily pushed lower.
However, because the Eurozone (European) economy is also emerging from its worst phase and showing a gradual recovery,
a unilateral Euro crash is considered unlikely to continue from here.
For the time being, price action is expected to remain range-bound, fluctuating within a set channel as markets react to US economic data (inflation rates and employment statistics).
Outlook Toward Year-End: Seeking Direction Around $1.15
In the second half of the year, if expectations for US rate cuts rise again,
the primary scenario envisions dollar selling that pushes EUR/USD toward a gradual rebound into the $1.15–$1.17 range.
However, if geopolitical risks surrounding Europe (such as political tensions or energy issues) reignite,
there is also a risk of testing lower bounds around $1.13 again,
making this a challenging market susceptible to news flow in either direction.
- Trading Strategy
Given high trading volumes and strong adherence to technical levels (chart milestones),
standard strategy involves targeting a reversal upward at previously established lows (around $1.13)
or considering short positions near highs (above $1.16).
USD/JPY (US Dollar / Japanese Yen)
Price action will likely feature range-bound consolidation near high levels, followed by a gradual medium- to long-term shift toward a stronger yen.
While USD/JPY remains at elevated levels,
the primary key moving forward is whether the "US-Japan interest rate differential" begins to narrow.
Recently, persistent yen weakness and dollar strength have continued, with the exchange rate temporarily pushing into the upper 162 yen range per dollar.
- Factors Supporting Upside (Dollar Strength / Yen Weakness)
Resilience in US Economic Growth
If the US economy continues to display fundamental strength,
the Federal Reserve's (FRB) pace of interest rate cuts will slow down,
preserving the appeal of high US interest rates (and keeping up buy pressure from swap points).Foreign Bond Investments by Japanese Investors
Although Japanese interest rates are on an upward trend,
US yields remain significantly higher by comparison,
allowing capital outflows from Japan to maintain downward pressure on the yen. - Factors Driving a Turn Downward (Dollar Weakness / Yen Strength)
Additional Rate Hikes by the Bank of Japan (BOJ)
If the Bank of Japan continues its series of interest rate hikes while assessing inflation and wage growth,
momentum for yen buying will strengthen.The Fed's Rate-Cutting Path
As inflation cools and the US enters a full-fledged rate-cutting cycle,
US long-term yields will decline, accelerating the trend of dollar selling.
Short to Medium-Term Direction: "Edgy Price Action at High Levels" Between 158 Yen and 163 Yen
Against the backdrop of geopolitical risks in the Middle East and a stronger-than-expected US economy,
the dollar remains resilient against downward pressure in the short term.
While the Bank of Japan is exploring gradual interest rate hikes, the overwhelming rate differential with the US will not close overnight,
meaning downward pressure on the yen testing the 160 range is likely to persist for a while.
If rapid yen depreciation unfolds, caution regarding currency intervention by the government and BOJ will also heighten.
Long-Term Outlook: "A Retracement Testing Yen Strength" Toward 152 Yen to 155 Yen
According to forecasts by many experts and major financial institutions (such as Nomura Securities),
if Middle East tensions gradually settle and crude oil prices stabilize, there is a high probability that the dollar's upside will gradually become heavy (returning toward a stronger yen) heading toward around 152 to 155 yen by the end of 2026.
Depending on the timing of Federal Reserve (FRB) rate cuts in the US and the pace of Japanese rate hikes, a scenario testing around 150 yen also remains within sight.
- Buy Points
Wait for a dip and buy when prices correct sharply toward levels such as the 158 yen range.
- Sell Points
Keep the "ceiling" around 162 to 163 yen in mind, targeting entries when upside momentum stalls.
Future Trade Strategies
EUR/USD
Because a clear, one-way trend is unlikely to emerge, it can be considered a market environment where short-term trades and contrarian strategies mindful of technical analysis (support and resistance lines) are easier to build.
USD/JPY
Because trends can shift rapidly during central bank meetings (BOJ and FRB) or releases of US CPI (Consumer Price Index) and employment data, it is effective to strictly enforce stop-loss orders while gauging signs of narrowing interest rate differentials.
