Learning to trade Forex for beginners can be a real challenge.
Forex for beginners how to learn to trade
For someone just starting out, one of the biggest hurdles to overcome is the initial learning curve. Understanding the basics of the forex market and its terminology can be overwhelming at first. Add to this the fact that it is one of the most complicated and difficult markets to navigate.
However, as we will see below, the forex market has many advantages over other markets, so it can be an interesting option for those who are new to trading.
The aim of this article is to provide a guide to help beginners who want to get into forex trading take their first steps.
What is Forex Trading (Explanation for Beginners)
Forex, also known as the foreign exchange market, is a global financial market where currencies of different countries are traded. It is the largest and most actively traded financial market in the world.
It is accessible to investors of all levels and operates continuously, 24 hours a day, 5 days a week.
The main purpose of foreign exchange trading is to profit from fluctuations in exchange rates between currencies. More specifically, forex trading is the trading of currency pairs.
Currency pairs from the ground up
A currency pair or currency cross in Forex is the combination of two currencies. Currency pairs represent the value relationship between the two currencies and are used to speculate on changes in their exchange rates. For example, the EUR/USD currency pair shows how many US dollars it takes to buy one euro.
Currency pairs are divided into major, minor and exotic currencies. The classification is based on how often they are traded.
Major currency pairs include the US dollar (USD) as well as the currencies of the world’s major economies, such as the euro (EUR), the pound sterling (GBP), the Japanese yen (JPY), the Canadian dollar (CAD), the Swiss franc (CHF) and the Australian dollar (AUD). These pairs are the most traded compared to other currency pairs and are the most liquid in the foreign exchange market.
Less important pairs include currencies of smaller or less liquid economies that are not linked to the US dollar, such as EUR/GBP (euro and pound).
Exotic pairs involve pairing a major currency, usually the US dollar, with a currency from an emerging market or smaller economy, such as USD/TRY (US dollar/Turkish lira) or USD/ZAR (US dollar/South African rand).
Currency trading for beginners
The value of currency pairs fluctuates depending on various factors. The aim of forex trading is to speculate on the movements of different currency pairs in order to make economic returns.
For example, if a trader believes that the euro will increase in value against the US dollar, he buys the EUR/USD currency pair and later, if his prediction is correct, sells it at a higher price to make a profit.
In forex trading, you can make a profit whether a currency pair rises or falls. This is called trading long and trading short.
How to learn Forex as a beginner
If you are a beginner in forex trading and don’t know much yet, I would focus on three areas:
Absorb as much as you can about the forex market.
Forex trading is an activity that requires specialised knowledge.
Therefore, I recommend that true forex beginners first learn as much as they can about the forex market.
You can do this in any way you like, such as through blogs, books, podcasts or videos.
Understand what the Forex market is, how it works and what specific terms it uses. There are many technical terms and if you don’t understand them, you will have a much harder time processing the information as you learn.
Some of these terms include:
Bid and ask price
Learn about the main strategies and choose the one that suits you best.
There are many different ways to make money in the forex market. There are traders who focus exclusively on technical or fundamental analysis. Others are experts in news trading and still others use a mixture of different strategies.
There are also different trading styles such as swing trading, day trading or positional trading.
Which strategies and styles should one choose? I advise you to first understand what the different types of trading in the market consist of.
And then choose the one that suits you and fits your lifestyle. It is not the same for someone who has 8 hours a day to trade as for someone who has only one hour at the end of each day.
Improve your trading knowledge
Forex trading has some special features, but it is essentially similar to trading other financial assets.
Therefore, you need to learn a number of general trading concepts such as risk management and technical analysis (recognising trends, candlestick patterns, support and resistance, etc.).
Once you have completed the previous three steps, it is time to develop a trading plan in which you define how you will trade (when you will enter the market, when you will exit, how much you will risk in each operation…). Later, you will validate your strategy through backtesting before facing the real market.
How to get started in Forex trading: 5 practical tips for beginners.
Finally, here are a few tips to make your journey out of being a beginner as easy as possible.
Have realistic expectations
Successful trading requires a lot of effort and dedication. If you think that you can earn large sums overnight as a beginner, it will only lead to frustration. Take it one step at a time and enjoy the journey as you learn.
- Take a practical approach to forex trading.
While it is important that you understand the theory of forex trading and all its terms, don’t stop there.
You can also take a more practical approach by looking at key news stories that affect currencies, such as central bank meetings or important macroeconomic data.
You can also look at the charts of different currency pairs and follow them. You will see how they behave, which ones are stronger and how they react to the major news as it happens.
- risk management for beginners
We could talk for hours about risk management as it is so important. To sum it up for beginners, you should understand that the main goal in learning to trade is to survive and not lose money (or lose as little as possible).
To achieve this, you should basically risk only a small portion of your account on each trade (1% is a good guideline). Also, do not bet any amount of money that could cause you any problems in the event of a loss.
4 Forex Psychology
Trading psychology is fundamental to achieving consistent and sustainable results. Mastering the emotional and mental aspect is as important as mastering technical skills and market analysis.
Emotions such as fear, greed and impatience can negatively affect decision making and lead to losses.
choosing a broker for beginners
Brokers are an essential part of forex trading as trading is not possible without them, so it is important to make the right choice.
As a starting point, you should look for a broker that is regulated, has low commissions, good customer service and an easy-to-use platform.
Where do you go from here? If you want to learn the basics of forex trading the easy way, check out the free forex course.