Do you want to learn to trade Forex, but don’t know where to begin? Here are a few pointers to all of your queries, which are related to Forex trading.
Learning to trade requires focus, dedication, determination and discipline. There is no denying that trading can result in earning significant profits, but the journey there may also result in overcoming significant losses. This is why it’s really important to learn about trading strategies, technical analysis and fundamental analysis, and trading psychology.
To begin with, the Foreign exchange market is a global, decentralised or over-the-counter market where traders can buy or sell currencies. The fluctuation in currency rates, which can be either current or predetermined, yield the overall trading activity. The foreign exchange market operates 24-hours a day, five days a week.
In order to excel at trading Forex, it’s highly recommended that you learn from as many resources as possible and practise trading on a demo account offered by our recommended brokers.
Learn to Trade by Educating Yourself From the Beginning
To become a successful Forex trader, it’s important to start from the very beginning. Learning to trade financial instruments on global markets requires a lot of attention, but hard work pays off and can prove to be effective for you in the long term.
Learn to Read Finance-Related News
You do not need to go through strenuous amounts of effort to achieve this. This step is as easy as reading the daily newspaper or heading to news sites for the latest and breaking news impacting financial markets and price volatility. If you start to read these regularly, then you will develop an improved vocabulary on financial markets and relevant terminologies used.
Learn to Analyse the Charts
To be able to read chart patterns is a valuable skill in Forex trading, which will ultimately help you understand various forms of chart analysis. There are two main types of analysis traders will use, either separately or combined, to help them achieve their desired trading goals. These are fundamental analysis and technical analysis.
Learn to Use a Demo Account
There are many online resources that can help you learn to trade. In addition to news websites, trading blogs and communities, broker educational portals and tools etc., your next best trading tool will be a demo account. These are often loaded with virtual funds and simulate your preferred broker’s trading platform. This is a very handy resource for a beginner trader indeed!
Learn the lingo
To gain a full understanding of what’s involved in Forex trading, it’s important to become familiar with key trading terminologies. Below you can find a few useful key terms commonly used in Forex trading:
This is the type of trading where two parties agree to buy one currency and sell it against another at an agreed price on the spot date. The spot exchange rate is the exchange rate used at the time the transaction takes place.
A contract for difference (CFD) is a contract for the difference in price when trading financial instruments. It allows the trader to trade on price movements of the financial instrument, without owning the physical asset itself.
The spread of a trade is the difference in the purchase price and the sell price of the underlying asset. There is a difference in price when a trader buys and sells a financial instrument, and this price difference is said to be the spread.
A margin is the amount of equity required to open and maintain a leveraged position. For example, if you trade on leverage, you only need to pay a portion of the cost upfront. If your broker requires you to pay 10% of the position as a margin, then the initial amount needed to open and secure this trade is US$100.
The volume is the number (or value) of securities traded during a specific time period.
How to Open a Forex Trade Account?
Before opening a live account, it’s highly recommended that you learn to trade the fundamentals and essential rules of Forex trading, as trading on leverage is high-risk. Many of our recommended brokers offer demo accounts pre-filled with virtual funds, which are an excellent learning tool that simulates a live trading platform. In this section we’ll go through a few key pointers and tips to be aware when opening a Forex account.
Using a Micro Forex Account
It has been suggested that beginner traders (or those that are less experienced in trading Forex) to start trading with a micro Forex account. A micro account allows retail investors to trade in micro lots, which is most commonly preset with an amount of 1,000 units of currency. It’s ideal for those who would like exposure to Forex trading, but with reduced risk.
Learning About Major and Minor Currency Pairs
Trading is all about understanding the markets and the financial instruments you wish to trade. Before you begin placing trades, it’s important to know how currency pairs react under certain market conditions. By doing this on a regular basis, you will gain a deeper understanding of key market influences and trends impacting the price movements of currency pairs.
Depositing Funds Into a Trading Account
There is no cost involved when opening a live trading account with most brokers, but prior to account opening and submitting a successful application, there are some brokers that require you to complete a suitability test to ensure that you have suitable wealth to trade on leverage. Upon application approval, you will then be required to deposit enough equity in your account, which should be equal to or more than the amount needed to fulfil margin requirements on a trade.
Requirements for the Account
When completing your application, you must be truthful in your responses as validation of your identity will be required at a later stage. Basic personal details must be submitted for most online application forms, such as name, address, email, date of birth and employment status etc. In addition to this, there are financial suitability criteria that must be responded to and met, such as annual income and trading experience etc.
Once the application has been successfully submitted, the broker will then verify your identity via multiple verification methods. Each broker has their own requirements in regards to approved form types for verification, which can each be weighted differently. Common forms of verification for proof of identity are your passport and driver’s license, and a utility bill or bank statement for proof of address.
The above-mentioned verification process may take a few business days to complete. Please note, form questions, requirements and processing times can vary from broker to broker. The above is just a summary of the most commonly encountered application process requirements.
Pro-Tip for Beginners
When you’re starting out, it’s not recommended to deposit and trade with huge sums of money (especially if you’re new and unsure of what’s required). It’s recommended that you deposit and trade with a relatively small sum of money that you are comfortable losing, should you incur potential losses.
As you develop your knowledge and skills required to trade Forex markets, especially understanding what risk management strategies to put in place and creating a trading plan that suits your goals and objectives, you will definitely be able to adjust your leverage exposure as you become more experienced.
What Skills Do You Need for Forex Trading?
Developing a robust trading skill-set is highly important to be able to navigate the financial markets, especially during times of market volatility. Below are a few key skills to develop quite early on during your trading journey.
Developing an Analytical Eye
Strong analytical skills are very important for the success of any trade. Being able to grasp the technical precision and accuracy needed when placing a trade will help you through both strong and weak currency fluctuations.
It’s important to remain disciplined when trading, as it’s very easy to act impulsively. For example, if you’ve been placing consecutive trades that have been profitable each and every time, don’t push your luck! A significant loss could result, which could leave you in a far worse position than having stopped earlier on.
Keep Yourself Mentally Strong
Mindset, mental stamina and attitude matter most in Forex trading. All the emotions that you can experience when trading, such as thrill and excitement on one spectrum, or anger and frustration on the other, must be controlled. This comes with experience. Professional traders and advanced traders alike, don’t let emotion eat into them (due to years and years of experience they have under their belt).
However, their focused mindset and well-trained trading psychology and controlled attitude are fundamental behavioural traits observed in such successful traders.
Keep a Trading Journal
By keeping a trading journal, it will help you understand your trading behaviour, patterns observed in your trading, which trades you placed and why you placed these trades etc. It’s a useful tool for a trader to have, as it can be used retrospectively to understand what worked and what didn’t work in your trading strategy and adjust for future improvement.
Regularly reading market news in the newspapers, or referring to online news sites (such as Bloomberg) and tuning into daily news broadcasts will help improve your knowledge and understanding of the markets.
Have a Thorough Understanding of Forex
There are plenty of free online resources and courses to help you get started, for example we have our own Education section that offers a range of trading guides suited to any traders level of experience. Understanding how to use platforms (such as MT4 or MT5), interpret indicators and signals, and enriching your knowledge on the Forex markets themselves will help you in the long term.
Things to Avoid in Forex Trading
You should avoid the following when trading online.
Don’t Over-Think and Over-Complicate Your Trading Strategy
Your trading plan and strategy should not be rigid. A trading strategy should be flexible enough, so that you can easily adjust your trading plan in times of volatility when the markets move against you.
Don’t Let Your Emotions Interfere With Your Trading
Keeping your emotions under control is very important in trading and it’s good to tame them as soon as you learn to trade. Emotions can take over your focused and determined state of mind, which can result in the trader abandoning his trading plan and all that they have worked towards for an impulsive decision made at the “spare of the moment” fuelled by emotion. The two main emotions experienced by traders can be both greed and fear.
A trader should learn to trade with a focused mindset and balanced emotions that do not get the better of them. For example, when profits are being continuously realised and you continue to trade out of greed. Alternatively, when markets are going against you and you fear that your account balance will drop to zero.
Don’t Invest Too Much Money When You’re Just Starting Out
First and foremost, always speak to your financial adviser and understand how much capital you have available to invest. Number one rule of thumb is to definitely not spend an amount of money that you cannot afford to lose.
Trading financial markets should not be compared with gambling and should not become an addiction. Trading is a carefully considered arithmetic that takes a considerable amount of time and training to master.
Final Tips and Recommendations
Forex trading is no doubt another form of earning a passive income. Profits can be maximised, but losses also. There is no hard and fast way to learn to trade – A lot of technique and strategy is involved, which develops over time with practise. There are multiple brokers offering demo accounts, which is a great tool to practise on.
To become a successful trader, you must consider risk management strategies, your trading psychology, emotion management, trading plans and strategies to list a few.
But most importantly, do your research when you’re learning to trade, don’t just wing it!