Forex For Beginners – Tips, Tricks & Steps
- Trading Forex means trading two different currencies
- One of the best FX platforms are MT4 and MT5
- There are many types of accounts: Demo, Mini, Standard, etc
- The most important features are pips, spread, leverage, and lots
Forex Trading Basics – How Do You Start?
Forex trading explained: Foreign exchange trading is buying and selling different currencies in order to generate profit.
The foreign exchange market is the world’s largest financial market and plays an important role in the global economy. Currency exchange rates in the Forex market change constantly every week.
Forex explained for beginners usually starts with an explanation of the market and how it works, but that’s way too specific. The ultimate way to understand FX trading is to start doing it, and the best way to do it is to find a good broker. There are several characteristics that a good broker should have. The first thing is security which is probably the most essential factor. Every broker should have a license and should be regulated by a specific financial institution. This is when you make sure they are reliable and trustworthy brokerage companies.
Another important thing about Forex trading is the platform itself. Choosing the right trading platform is one of the most crucial decisions that an investor needs to make in FX. It gives traders access to various important trading instruments and tools that will simplify the trading experience. The two most well-known Forex trading platforms include MetaTrader 4 and MetaTrader 5.
In order to understand currency trading basics, we also need to mention the diversity of trading account types. The first and foremost account for beginners is the demo account. Other types include Standard, Mini, and Managed Trading accounts. There is also a special account for people who follow Islam, called the Islamic account. It is designed to adhere to the Quran, which is why it’s a swap-free account.
The most important trading features a trader needs to be aware of are Spreads, Leverage, Lots, and Pips. These 4 features are the bread and butter of FX trading in this day and age.
The basics of Forex market can sometimes boil down to the company you choose to trade with. Due to the extreme difference in the features each company provides, every trader has a different experience. Choosing the right broker is your first step towards success while choosing the wrong one can lead to nothing but failure. Besides a guarantee of success so to speak, a good brokerage also provides security and protection to their clients should something go wrong. While unregulated brokers are not so likely to help out.
Beginner traders are often confused by the wide variety of opportunities that exist in the Forex market in terms of broker companies. This is why every novice trader is recommended to research their broker of choice extensively before making a decision.
On the other hand, another important factor to be mentioned in this Forex beginner guide is the transaction costs of the specific brokers. Almost every type of brokerage company has its own commission so investors should pay close attention to them and choose the lowest rates possible in order to maximize their overall profits.
Moreover, while talking about the Forex brokers, it should also be noted that the profit withdrawal process should be smooth, fast, and comfortable. This is usually guaranteed through a vast array of possible withdrawal methods, as well as an absence of any hidden fees.
The final feature of a brokerage that needs to be paid heavy attention to is customer service. Beginners tend to have lots of questions for their brokers, even if it’s about Forex trading basics that they may not be sure about. And due to how fast things change in the market, brokers should always have swift answers ready for such questions.
Choosing a good Forex trading platform is very crucial. There are several characteristics that good platforms should have for the trader to reach success. Such features include trustworthiness, responsiveness, protection of the customers’ data, analysis tools, and so on. However, there is no such thing as the best platform for everyone. This is because every trader has their own trading goals and strategies so they are recommended to choose the platform that matches their trading needs.
But if we were to outline the best options, MetaTrader 4 and MetaTrader 5 would be the first to come to mind.
MetaTrader 4 has been operating in the Forex market for more than 16 years. It’s pretty much a part of every single Forex step-by-step guide at this point. It’s probably one of the easiest platforms to learn, which in turn helps the traders develop new trading strategies.
MT4 is also one of the most reliable, highly secured, and protected platforms in the FX market right now. This helps protect from any technical meddling from a third party, or even a crash of the software during important decision-making processes. On top of that, this software provides a high level of technical analysis tools, a comfortable trading system, algorithmic trading, and not only a web but also a mobile app version.
Another essential trading software that should be included in this Forex trading basics for beginners is MetaTrader 5. Millions of people around the world use this reliable trading platform because of its high-quality features. MetaTrader 5 offers its customers highly advanced technical analysis tools that give the investors an opportunity to predict future movements that might occur in the foreign exchange market.
Moreover, it should also be noted that MT5 allows trading with different types of assets such as Forex, stocks, and futures. It also has an algorithmic trading option such as robot trading and Expert Advisor. The most beneficial thing about MT5 is that it is dedicated to beginners as well as professional traders.
In this beginners guide to Forex trading, we should also state that there are several trading account types. They include Demo, Standard, Mini, and Managed accounts. However, there is also a special type called Islamic account. We will discuss them briefly down below.
A demo account is dedicated exclusively to novice traders in order to find out everything about the foreign exchange market in a simulated environment. This account is a huge opportunity for beginner traders to test various strategies and trading tools and gain important experience. All of this happens without putting real money at risk. Demo accounts are the best way to gain substantial knowledge about how the FX market works in general and understand every detail that might be very beneficial for them in the future. This is why it’s the best option to start currency trading for beginners.
The standard Account is the most widely used account type which gives the traders access to the standard lots that contain 100,000 of a single currency pair. However, it doesn’t mean that traders have to deposit 100,000 currency units of their own. With the help of leverage that the broker provides, the minimum deposit amount can be reduced considerably.
Islamic accounts are dedicated exclusively to Muslim traders who are not allowed to trade with interest rates. It is an account that does not have swaps so people in the Muslim world can freely trade the foreign exchange market with this type of account.
Forex Trading For Newbies – Basics To Know
Forex trading explained quickly: Forex trading tools are sometimes referred to as features.
Forex trading tools play a huge role in every investor’s trading process. This is something that the newcomers should analyze in a detailed way before they decide to start trading FX . Analyzing the Forex trading features will definitely help new investors to generate more money and avoid the downsides in their potential tradings.
Spreads are the ultimate basics of the Forex market to put it lightly. It is the difference between currencies’ selling and buying prices. Usually, this amount of money is the profit that the broker receives for its service. There are two types of Forex spreads: fixed and floating. The fixed spread is not influenced by the current market performance or volatility. on the other hand, floating spreads are the exact opposite where the final amount fluctuates based on market conditions.
Now that we’ve covered some basics in our FX explained for beginners guide, it’s time to touch upon some more complicated matters. Leverage is probably one of the most important of them. The idea is that FX traders take loans from brokers to increase their trade size, and therefore generate more in profits if they are successful. There are a wide variety of leverage ratios in the foreign exchange market and it is fixed by different brokers. Novice traders should know that the average level of leverage ratio ranges from 1:100 to 1:200. The newcomers are not recommended to use the higher levels due to the increased risk associated with them. This is why trading with leverage requires substantial knowledge of the market in order to avoid potential downsides.
Another important term in the Forex market is the lot. According to almost every currency trading guide you’ll see on the internet, as well as this one, lots are simply a “predetermined” method to outline trade sizes. Mainly there are four types of lots. The Standard lot with 100,000 units, the Micro lot with 10,000 units, the Mini lot with 1000 units, and the Nano lot with 100 currency units. The difference between them is the number of units and that’s it. This means that the higher the lot size higher the risks that an investor has to face. It is impossible to say which lot type is the best because it depends on the goals, trading preferences, and financial capacities of an individual trader.
Pips are a vital part of our Forex trading for newbies guide. It represents the change of a currency’s exchange rate relative to another currency. 1 Pip represents 1/10,000th of a currency unit. So the growth of only 0.0001 would be seen as a growth of 1 pip. On the other hand, for currencies that are paired with the Japanese JPY, the pip equals 1/100th of a cent, so 0.01. This is because the price movements are way more significant in those currencies. In order to calculate a Pip’s value, you will need to use the following equation: Pip Value = Contract Size x One Pip.
Forex Beginner Guide – Dos And Don’ts
There are several things that novice traders need to take into account before they open a trading position in the foreign exchange market. First of all, as in other financial markets, Forex also has some important trading methods and strategies. When newcomers take their first steps into this market, it is almost impossible not to make mistakes on the way, however, it does not mean that those failures will be an obstacle for them to reach success. So let’s discuss what are the things that beginner traders should or should not do while trading FX.
Even though it is hard to tell which is the best method of trading Forex, there still are some factors that have a huge impact on the success of every trader.
Using The Demo Account
The first thing that every newbie should take into consideration is using a demo account. This is the best option for them in order to explore the trading strategies, tools, different platforms as well features and gain a lot of experience and knowledge about the foreign exchange market without risking anything.
Using Low Leverage
Lowering how much leverage you use, further takes away the risks that you face every day in the market. Although some risks still remain, the losses are not nearly as high as with higher leverage such as 1:100 or larger.
Now let’s take a look at some of the biggest mistakes that new traders make and why you should avoid them.
Do Not Start Trading Without Research
If you are trading without doing any research, validating data or making plans for your next trade, then you’re not really trading, you’re basically gambling. The one thing that separates financial markets and casinos is that you can do some of your own research and deduce accurate market movements rather than completely leave your fate up to chance.
Do Not Overestimate Trends
One thing we’ve noticed Forex beginner guides never focus on is the power and danger of trends. It is very easy to get swept up by the hype train, forcing you to trade a specific currency pair due to FOMO (Fear of Missing Out) and then getting caught up in the storm that follows after a price fall.
Do Not Trade With Unknown Currencies
It is also recommended you avoid any currencies you have no contact with. For example, trading with USD, EUR or even CAD from anywhere in the world is much safer than trading with a completely unknown currency you’ve never heard of before. Most beginner traders are recommended to trade with their own domestic currency as information about it is more readily available.
What Did We Learn With This Forex Beginner Guide?
We learned that choosing the appropriate Forex broker before starting trading is one of the most important decisions a new trader can make.
MT4 and MT5 are the best software choices for FX trading.
There are four types of trading accounts including the Demo, Standard, Mini, and Managed accounts.
Leverage can be both helpful and dangerous.
Detailed Info On Forex Trading For Newbies
Can I Teach Myself To Trade Forex?
Yes. There are several ways to do that. First of all, there are various educational videos on different websites that include professional traders who explain what major characteristics of FX trading are and how newbies can take their first steps in this financial market.
Another way is to just try out as many trading strategies as possible by using the Demo account that is readily available to you from most brokerages.
How Do I Start Learning Forex?
There are various ways to start learning Forex. However, probably the easiest way is to create a demo account on the broker’s website and start trading in the virtual environment without putting any money at risk. This account is a huge opportunity for beginner traders to test various strategies and trading tools and gain important experience.
Is It Easy To Learn Forex Trading?
It definitely is not easy to learn Forex trading for several reasons. First of all, there are various concepts to understand before starting trading that includes Forex leverage, pips spreads, lots, and so on. In order to fully understand this financial market, every trader is required to know all about these trading features and how they work.
Furthermore, there are extremely detailed technical indicators as well as market terms that will require your attention. Overall, learning to trade FX takes time and patience.