Many people want to get into forex trading and make quick profits, but only a few even know how to start. While trading forex online has now become easier than ever because of powerful platforms, it can still feel incredibly overwhelming to get started with it.
Here is everything you need to know to start trading forex for beginners.
What is forex trading?
Forex trading is the exchange of global currencies with the aim to profit from the fluctuating exchange rates of two currencies. Traders can buy and sell currencies in the forex market and speculate if the exchange rates will increase or decrease.
The demand and supply of a currency against another currency makes their exchange rates fluctuate in the forex market, on which traders speculate to make a profit.
Benefits of forex trading
- The forex market can be traded in a 24-hour period, 5 days a week as it is open in different parts of the world throughout the day. This enables traders from international time zones to trade according to their convenience.
- It is highly liquid, with millions of transactions happening every day, making it easy for traders to buy and sell currencies of their choice.
- Traders can trade with leverage and take bigger positions in the market with a significantly smaller deposit.
- The forex market is decentralized and not influenced by any middleman.
How does forex trading for beginners work?
- Beginners must learn forex trading by understanding the forex market in-depth and the factors it is affected by. Follow the news announcements closely and compare them with the market’s movement to educate yourself about the forex market.
- Create a trading plan with your trading objectives and goals, and stick to the plan at all times.
- Open a forex trading account with a reliable broker offering competitive rates and research the forex pair you want to trade.
- Once you have decided on the pair you want to trade, the next step into learning to trade forex is to compare its historical price movement to analyze its future price direction and place a long or short order.
- After placing the order, monitor the market closely to make further decisions accordingly. If the market moves in your favor, you can either hold onto the trade or exit it to reap profits. However, if the markets start moving against you, you can consider closing the trade at the right time to minimize losses.
How to trade forex
1. Select your currency pair
In Forex trading, you are basically exchanging the value of one currency with another currency. So you buy one currency while selling another currency, all at the same time. That is why you always trade the currencies in pairs.
The first currency in the currency pair is called the base currency and the second one is called the quote currency. The price of the Forex pair is defined as how much one single unit of the base currency is worth the quote currency.
To keep things in order, most Forex trading platforms split the currency pairs into the following categories:
- Major pairs: These include seven currencies that make up for 80 percent of the total global Forex trading, including EUR/USD, GBP/USD, USD/JPY, USD/CAD, and AUD/USD, USD/CHF.
- Minor pairs: These mainly include lesser traded currency pairs with major currencies except for USD, like EUR/CHF, EUR/GBP, and AUD/USD.
- Exotics: These include major currencies against currencies from emerging or smaller economies like EUR/CZK, GBP/MXN, and USD/PLN.
- Regional Pairs: These pairs are often classified by regions like AUD/NZD and EUR/CZK.
Most new traders follow the same forex trading strategies of picking up one or two major pairs to focus on, but you can also start off with minor currencies.
2. Decide how to trade forex
The next step in learning how to trade forex for beginners is to decide how exactly you want to trade currencies. In addition to choosing the currencies, you can also choose a different market for trading every currency pair. There are two main types of Forex markets that you can consider:
- The spot market provides you with the live price of the Forex pair and allows you to trade on the spot. This is often the best way to start.
- The forward market lets you agree to settle your trade on a set date or range of dates in the future.
3. Make a decision to buy or sell the currency
Now that you know which currency you are trading and how you are trading, you need to decide whether you want to buy or sell the currency to trade forex.
You should buy a currency pair if you think that the base currency will eventually get stronger against the quote currency, or if you think the quote currency will eventually go weak against the base currency. You start profiting as the currency pair value rises, but you will start incurring losses if the currency pair falls beyond your open level.
You should sell the currency pair that you have if you believe the value of the pair will decrease, as in -- the base currency will go weak against the quote currency, or the quote currency will get stronger against the base currency. Since this is a short position you will be taking, profits will increase as the currency pair’s price starts to fall, but you will incur losses if the pair price starts to increase above your open level.
Note: Pay attention to spread in Forex trading. Spread is defined as the difference between the buy and sell prices of the Forex currency pair. When you trade forex, you will see two prices listed for each currency pair -- the first is the sell price or the bid, and the second is the buy price of the ask. Spread is the difference between each two which covers the trading cost.
4. Always be ready to manage your risks
Risk management is important for Forex trading and it is one of the key elements that you should understand when learning how to start Forex trading.
There are two types of orders that you can use for risk management:
- Stop loss order: With this order, you give an instruction to close the trade at a price that is worse than the current market level in order to minimize the losses that you might incur.
- Take profit order (Limit order): This is an instruction to close the trade at a price that is better than the current market level in order to lock your price targets.
How does forex trading for beginners work?
- Beginners must learn forex trading by understanding the forex market in-depth and the factors it is affected by. Follow the news announcements closely and compare them with the market’s movement to educate yourself about the forex market.
- Create a trading plan with your trading objectives and goals, and stick to the plan at all times.
- Open a forex trading account with a reliable broker offering competitive rates and research the forex pair you want to trade.
- Once you have decided on the pair you want to trade, the next step into learning to trade forex is to compare its historical price movement to analyze its future price direction and place a long or short order.
- After placing the order, monitor the market closely to make further decisions accordingly. If the market moves in your favor, you can either hold onto the trade or exit it to reap profits. However, if the markets start moving against you, you can consider closing the trade at the right time to minimize losses.
How do I profit from forex trading?
You can profit from trading forex through the difference between the base and quote currency.
The first currency that appears in a forex pair is the base currency and the second currency is called the quote currency. A trader buying a particular currency pair exchanges the base currency for the quote currency to profit from the difference between the two.
For example, if you are trading USD/EUR, and you want to open a long/ buy position, then you will be buying USD by selling EUR.
If the exchange rate of USD/EUR is 2, then for every 1 USD, you need to sell 2 EUR.
Traders can analyze the market’s trend direction and long or short a currency pair to profit and add gains into their currency trading for beginners account once the trend direction is confirmed through two or more forex indicators.
How to choose the right forex broker?
- Check for multi-region regulated brokers
To trade forex markets of different countries, you should sign up with a multi-region regulated broker that offers trading platforms working in different countries, amplifying your trading opportunities.
The broker you want to trade with must be affiliated with different regulatory bodies depending on the country you are trading from. The brokers must be up to date with regulatory compliance. For example, forex brokers in Australia must be registered under ASIC (Australia’s Security and Investment Commission). - Choose the broker that offers security
Trading in a safe and secure environment helps traders utilize their funds in the best way possible. Make sure that your broker keeps your funds, information and everything related to your trading process confidential. The latest security protocols, encryption technologies and secure forex trading platforms are a must to protect your funds and private data. - Quick withdrawals
Forex brokers should offer quick and automatic withdrawals. While selecting the right forex broker, make sure to compare withdrawal and deposit fees as well. - 24/7 support
It is always helpful to open an account with a broker that offers support 24/7. An end-to-end support helps tackle any issues that you may face while trading and get quick resolutions for the same. - Tight spreads
Forex spreads refer to the difference between the buying and selling price of a currency pair. The lower the difference, the better chance for the traders to make a higher profit. As a result, you should look for brokers that offer small and tight spreads. - Strong leverage and margin
Margin is the amount you deposit in your trading account, based on which you can access leverage.
Leverage is the process of borrowing money from your trading broker to open higher positions in the market with a smaller deposit, magnifying forex returns through favorable currency pair price moves. The higher the leverage provided by the broker, the greater is the profit potential.
Tips for forex trading
- Start with a small investment and understand the market first before you invest a large capital.
- Diversify your portfolio slowly by including major, minor and exotic currency pairs.
- Use technical analysis to forecast the future market conditions based on which you can place orders.
- Always place a stop-loss order to minimize your risk in the market.
- Choose a broker who has a reliable reputation in the market with ideal pricing, order execution and forex trade delivery systems.
- Determine the forex entry and exit point by analyzing the price charts of the currency pairs.
- Do not blindly add to losing trades to bring down the buying price.
Start your forex trading journey
Blueberry is a multi-regulated global trading platform that can help you kickstart your forex journey with its quick withdrawals, tight spreads, and 24/7 support. You can check our forex trading program to get free lessons about trading the forex market and even start with a free demo account to practice your trading skills before you start investing actual money.
Sign up for a live trading account or try a demo account. Take a look and get started today.