Everything You Need to Know Before Starting FX

This article is mostly unnecessary for those who have been trading FX for years and casually use terms like pips, margin maintenance ratio, OCO, trailing stops, swap points, non-farm payrolls (NFP), FOMC, and order books.

The target audience is people who have just started FX, or those who are interested but want to sort out the basics: "What exactly are we buying and selling?", "What does 25x leverage mean?", "What are SL and TP?", "Why does it stop on weekends?", and "What changes when London hours start?".

However, this won't be a mere glossary. FX is incredibly fascinating.

There is no confirmed guaranteed winning strategy in FX. Not even for AI. Not for automated trading. Therefore, the first thing to learn in FX is not "how to make money," but "what exactly am I doing."

Chapter 1: The Basics and Truth of FX

TL;DR
- FX is buying one currency and selling another simultaneously.
- Leverage magnifies price fluctuations, not your money.
- Maximum leverage of 25x is a ceiling, not a recommendation.

1. What Exactly is FX?

FX stands for Foreign Exchange. For example, if USD/JPY is at 160 yen, it means: 1 Dollar = 160 Yen. Buying USD/JPY means buying dollars and simultaneously selling yen (Long). Selling USD/JPY means selling dollars and buying yen (Short). In FX, you can trade upwards or downwards with almost the exact same operation. What is truly important is not the theoretical upper or lower limits of the price, but rather: "How large a position you hold relative to your margin."

2. Retail FX in Japan is Actually Not That Old

The individual FX market in Japan started taking off after 1998. In the 2000s, there were brokers offering leverages so high (up to 400x) it's hard to imagine today. Due to regulations, the maximum leverage for retail FX was lowered to the current 25x in 2011. 25x is the result of the government forcibly hitting the brakes.

3. Understanding 25x Leverage in Numbers

With 1 million yen at 25x leverage, you can trade up to 25 million yen worth. You are accepting price fluctuations equivalent to 25 million yen. If a 25 million yen position moves by 4% in the opposite direction, that's a 1 million yen loss. The maximum leverage is a "device to magnify price fluctuations against your assets by up to 25 times."

4. "25x" Does Not Mean Brokers Must Let You Trade at 25x

Each broker can set stricter margin rates and stop-out criteria. Holding a position right up to the margin limit means even a small price movement will cause a stop-out (forced liquidation). "You can trade up to 25x" and "You should trade at 25x" are completely different.

Chapter 2: Why Markets Move

TL;DR
- Markets react more to surprises (differences from expectations) than raw data.
- Interest rate differentials strongly dictate currency pair movements.
- Interventions are powerful but unpredictable; predicting them is gambling.

7. When is FX Active?

• 8 AM - 3 PM (Tokyo/Asian Time): Relatively mild price movements.
• 3 PM - 9 PM (Europe/London Time): Trends occur easily, volatility increases.
• 9 PM - 6 AM (New York Time): Market moves most violently. Overlap with London time is when trading peaks.

The FX market operates 24 hours a day on weekdays.

8. Why Does the Chart Suddenly Jump at 9:30 PM?

Economic indicators like US Non-Farm Payrolls (NFP) or CPI cause jumps. What the financial market reacts to is often the "difference from expectations" rather than the numbers themselves. Even a "good" number can cause the dollar to fall if it was lower than what the market expected.

9. Looking at Interest Rate Differentials Makes Currency News Suddenly Make Sense

When looking at USD/JPY, the interest rate differential between Japan and the US is extremely important. If US interest rates are high and Japanese interest rates are low, the dollar strengthens. Financial markets trade by anticipating future policy rates, so a bad employment report can lead to expectations of rate cuts, shrinking the interest rate differential and causing USD/JPY to fall.

11. What is Happening During Currency Interventions?

To stop yen depreciation, the government sells foreign currency and buys yen. In 2026, Japan and the US even conducted coordinated yen-buying interventions. Nations simultaneously balance multiple interests such as domestic inflation, trade, financial stability, and diplomatic relations.

12. Can You Make a Fortune from Interventions?

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If you could perfectly predict interventions, you could make a massive profit. The problem is that you cannot be certain beforehand. High leverage is especially dangerous during interventions because a sudden several-yen move can trigger a stop-out before you can react. Government statements, past levels, and speculative positioning are analyzed, but you cannot guarantee the result. </details>

Chapter 3: Trader Realities and Data

TL;DR
- FX for retail traders is a negative-sum game due to costs.
- Emotions cause traders to win small and lose big.
- Leverage magnifies outcomes but doesn't determine winning or losing.

13. Is FX a Zero-Sum Game?

While speculators' profits and losses offset each other, trading costs (spreads, slippage, swaps) exist. Therefore, the game for individual traders is a negative-sum game.

14. The Trap Humans Fall Into Most Easily is "If I Just Wait a Little Longer"

Prospect Theory shows people feel the pain of loss more acutely than the joy of gain. This leads to closing winning trades early and holding losing trades hoping they bounce back. A structure is born where you win small and lose big. SL (Stop Loss) is a mechanism for your calm past self to intervene when your future self becomes emotional.

15. What Mattered When Researching Actual Japanese FX Traders?

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Research by Kobe University analyzing retail FX investors showed that high leverage appeared in both the top and bottom tiers of performance. Leverage itself has no "power to win"—it merely amplifies profits if the trade is right, and amplifies losses if the trade is wrong. </details>

16. Stocks or FX: Which is More of a Gamble?

FX looks scarier because of leverage, magnifying a 5% price move into a massive portfolio swing. However, individual stocks can easily surge 10x or 70x in months, which currencies rarely do. The level of gambling is determined by what you buy, how much you buy, and your loss tolerance.

22. The Trap of Overtrading, Common to Both Humans and AI

The sensation that "I feel like I'll win if I do something" leads to boredom trades and revenge trading. The more you trade, the more you suffer from degraded performance after deducting trading costs. AI also faces this: testing 1,000 combinations to find one winner often results in discovering mere coincidence.

30. FX Billionaires Exist. But Be Wary of Statistics Counting Them

While successful traders exist, statistics counting "FX millionaires" are often misleading due to multiple accounts, corporate accounts, and unverified wealth sources.

31. Are Institutional Investors Really Hunting Retail Investors?

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Institutional investors aren't specifically targeting your 1-million-yen account's stop loss. They look for massive liquidity to execute their large orders. This liquidity naturally gathers at obvious highs, lows, and round numbers, making it look like retail stops are being "hunted." </details>

32. "My Prediction was Right" and "It Was a Good Trade" are Different

A reckless gamble with massive leverage that coincidentally wins is a terrible teacher. Even with a statistically advantageous method, you will have losing days. Do not judge a trade solely by its short-term result.

Chapter 4: Behind Systems and Tools

TL;DR
- Order books show where people pay attention, not the future.
- "Stop-out" doesn't guarantee you won't lose more than your margin.
- Automated trading and AI cannot perfectly predict the market.

5. Minimum FX Terminology You Should Know

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6. "I Won't Go Into Debt Because of Stop-Outs" is a Mistake

FX companies have stop-out rules, but during weekend gaps or violent market events (interventions, flash crashes), your order might execute far beyond your stop loss level. Losses exceeding your deposited margin can and do occur.

10. Order Books Are Not "A List of All Global Orders"

FX is not a single centralized exchange, so broker order books only show their customers' data. It's a map showing where a segment of market participants is paying attention (psychological milestones, stop-loss clusters), not a map teaching you the future.

18. If You Want to Use APIs, OANDA and Saxo are Options

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For programming enthusiasts, some brokers like OANDA and Saxo Bank offer REST and OpenAPI access. You can fetch prices and place orders via Python, but strict account conditions usually apply. </details>

19. You Can Even Build Your Own Custom FX Game Screen

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With APIs, you can build custom UIs combining gaming and FX. However, API tokens are dangerous. Never embed API keys in browser JavaScript. Build proper safety measures like daily loss limits and server-side kill switches. A UI warning you about your max loss is better than confetti for a profit. </details>

20. Automated Trading Has Existed Forever. So Why Isn't Everyone a Billionaire?

Automated trading programs (EAs) have existed for years. But logic that wins in trending markets loses in ranges. Tailoring to past data causes Overfitting. Backtesting is not a guarantee of the future; it merely shows how a hypothesis fared in the past.

21. Can AI Predict FX?

AI is great at processing news, coding backtests, and calculating indicators. However, perfectly predicting the market is a different problem. Current LLMs are text-prediction models, not future-telling devices. If a prediction becomes widespread, it alters the price. Use AI to reduce overlooked information, not to guess the future.

Chapter 5: Risk Management and Taxes

TL;DR
- Your stop loss distance should dictate your lot size, not vice versa.
- Averaging down (Nanpin) without limits is fatal.
- Domestic FX taxes are ~20%, while overseas brokers have different risks and tax rules.

17. How Should You Choose an FX Broker?

Check if the broker is registered with the Financial Services Agency (FSA). Choosing unregistered overseas brokers just for high leverage exposes you to legal, withdrawal, and tax risks. It is far more rational for beginners to choose domestic registered brokers.

23. There is No "Correct Distance" for Stop Losses and Take Profits

Decide the maximum amount of money you are willing to lose on a trade first. Then, look at the chart, find where your hypothesis would be proven wrong, and calculate your Lot size backwards from that stop loss distance.

24. "Nanpin" (Averaging Down) and Average Entry Price

Buying more when the price drops lowers your average entry price, but doing this endlessly because you refuse to admit a loss is fatal in leveraged trading. A planned, split entry is entirely different from emotional Nanpin.

25. Swap Hunting is Not a "Time Deposit That Pays Interest"

Receiving swap points from high-interest currencies seems attractive, but high interest rates often reflect high inflation or political instability. The currency depreciation can easily wipe out your swap gains.

26. What About FX Taxes?

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Domestic FX profits are taxed at a flat rate of roughly 20.315%, separate from your salary. FX losses cannot be deducted from your salary but can be offset against other futures trading profits and carried forward for 3 years if you continuously file tax returns. </details>

27. The True Meaning of "No Need to Declare if Under 200,000 Yen"

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This is a special exemption for some salaried workers. However, if you file a tax return for any other reason (like medical deductions or freelance work), you must include those FX profits. Also, resident tax declarations may still be required. </details>

28. Are AI Costs and PC Costs Used for FX Tax Deductible?

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Expenses directly necessary to earn FX revenue can be deducted. However, claiming a 500,000 yen gaming PC or a general ChatGPT subscription fully as an FX expense requires you to prove its necessity and apportion it properly from personal use. </details>

29. Overseas FX Doesn't Always Have the Same Tax Rules

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Profits from unregistered overseas brokers often fall outside the special ~20% flat tax rate and are taxed as general miscellaneous income, meaning they can be subject to much higher progressive tax rates. </details>

33. The First Thing Beginners Should Build is Not a "Winning Rule" but a "Survival Rule"

The most important thing is preserving the ability to make the next trade. Decide your maximum loss per trade, daily loss limits, and maximum leverage first. Money management matters far more than obsessing over win rates.

Chapter 6: Rules for Survival

TL;DR
- FX connects you directly to the heartbeat of the global economy.
- Survive first; you don't have to trade every day or use max leverage.

34. Once You Start FX, World News Becomes "Your Business"

Once you trade, the US employment report, the Fed Chair's words, and oil prices stop being abstract economic news. They become real, moving prices in seconds. Beyond that single chart lies the entire global economy.

35. That Is Exactly Why Reducing FX to "Easy Money" Is a Waste

Despite advanced tools, automated trading, and AI, predicting the market remains incredibly difficult because the brightest minds are all competing in it. However, FX is a rare mechanism where individuals can observe the world's largest financial market. 25x leverage is not an obligation. You don't need to trade every day. The most dangerous thing is your trading volume growing while you don't understand what you are doing. The first technique to learn is not how to make a massive fortune, but how to avoid being forced out of the market.