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Forex Trading for Beginners

Disclaimer: The products or services discussed in this article may not be offered by Taurex and may only be listed here for educational purposes.

The global forex market trades more than 170 currencies, and experts estimate the worth of this global market to be approximately $2.4 quadrillion.

What steps should you take to start trading? What strategies can you use to help you trade better in forex?

This article discusses how beginners like you can start trading forex and provides various tips that can help improve your profitability in forex trading.

Taurex offers beginners and experienced traders an online platform for trading financial instruments. It also provides tight spreads and competitive trading conditions across forex, commodities, shares, indices, and metals.

Forex Basics

If you’re a forex trading beginner, it can be a challenging experience due to common but unrealistic expectations among newcomers to this market.

However, many basics of forex, like how the buy and sell transactions happen, often overlap with stock trading basic principles. If you have experience trading stocks, forex trading should be relatively easy to learn.

What Is Forex Trading for Beginners?

Foreign exchange, or forex, is a global marketplace where traders exchange one national currency for another. Profit or loss from this exchange comes from the fluctuating prices between the traded currencies.

An Overview of Forex Markets

You can trade forex primarily through spot, forwards, and futures markets. The futures and forwards markets are based on the spot market, making it the largest of the three. If you hear people talk about the forex market, they’re typically referring to the spot market.

Suppose you work in a company or financial firm that hedges its foreign exchange risks out to a future date. In that case, the forwards and futures markets may be the more popular markets for forex trading.

What Is the Forex Market?

The foreign exchange market is where you can trade currencies. Unlike stock exchanges, the forex market has no central marketplace. Instead, traders conduct currency trading electronically over the counter (OTC). All forex transactions occur via computer networks worldwide instead of on one centralised exchange.

The forex market operates 24 hours daily. Traders can exchange currencies in major financial centres worldwide across almost every time zone.

Spot Market

In the spot market, you can buy and sell currencies according to their trading price determined by supply and demand. Prices also depend on the following factors:

  •   Current interest rates
  •   Price speculation
  •   Economic performance
  •   Geopolitical sentiment

A spot deal is a finalised bilateral transaction in which one party provides a currency amount to the counterparty and receives a specific amount in another currency at the agreed exchange rate value. The trade gets settled in cash after the position closes.

Forwards and Futures Markets

Forwards are contracts between two parties to buy currency at a set price and date in the OTC markets. You can buy and sell contracts in the forwards market and decide the agreement terms between you and the other party.

Futures contracts are similar to forwards but are bought and sold according to a standard size and settlement date on public commodities markets. Futures trade on exchanges like the Minneapolis Grain Exchange (MGEX) instead of the OTC.

Forex Leverage

When you trade forex through spread betting, you usually trade using leverage. By using leverage, you can engage in margin trading, wherein you put up a portion of the full trade value to enter a position.

However, you must understand that leverage trading can magnify profits and losses. Your market exposure will depend on your position’s total trade value.

Forex Holding Costs

If you have a position you haven’t closed by the end of the trading day, the forex broker can charge you a holding cost. This amount gets credited or debited to your account depending on the applicable holding rate and your trading direction.

Why Trade Forex?

You can trade forex for various reasons, like wanting to earn a suitable daily income or entering and exiting a position in any major currency with relative ease due to the market’s liquidity (ease of cash conversion.

You can also trade anytime in different sessions globally because forex has no central market.

A Brief History of Forex

Foreign exchange markets have existed for as long as humans have been trading. For example, ancient civilisations traded goods and currencies using metal coins, whose value used to be based on weight.

The first actual forex market was established in Amsterdam approximately 500 years ago. The exchange allowed people to trade currencies freely and to stabilise exchange rates.

In 1875, several nations implemented the gold standard, allowing these countries to print currency equal to their gold reserves. Governments chose gold as the metal of choice because of its rarity, malleability, difficulty of acquisition, and toughness to corrosion.

Uses of the Forex Markets

Currencies have two distinct features as an asset class:

  •   You can earn money from the interest rate differential between two currencies
  •   You can profit from exchange rate fluctuations

To profit from the difference in interest rates, you buy the currency with the higher interest rate and short (sell) the other with the lower interest rate.

Forex for Hedging

Let’s say you run a company in a foreign country. Your business may risk exposure to currency value fluctuations when you buy or sell goods and services outside your domestic market.

Foreign exchange markets can provide a way to hedge (limit) currency risk by fixing a rate at which you complete the transactions.

For instance, you can buy or sell currencies in the forwards market to lock an exchange rate. Doing so can help increase your gains or reduce your losses depending on which currency rises or falls in value.

Forex for Speculation

Interest rates, economic strength, trade flows, tourism and geopolitical risk can affect a currency’s supply and demand and create daily volatility in the currency markets.

This volatility creates opportunities to profit from changes in one currency’s value over the other currency being traded. For example, forecasting that one currency’s value will fall is the same as speculating that the other currency’s price in the pair will increase.

Based on these predictions, you can buy or sell one of your pair’s currencies and profit from the price movement.

Why Do People Trade Currencies?

You can trade forex to diversify your portfolio, especially when trading in other financial markets like stocks or commodities. You can also use forex to speculate on geopolitical events and profit from currency price movements.

Are Forex Markets Volatile?

Forex markets are among the most liquid in the world and can be less volatile than other markets, such as real estate. You can use a currency’s volatility to measure factors like the country’s economic and political situation.

Events like a country’s economic instability due to a payment default or trading relationship imbalance with another currency can result in significant volatility and affect currency prices.

Are Forex Markets Regulated?

Forex trade regulations can vary depending on the jurisdiction. The Financial Conduct Authority (FCA) regulates and monitors forex in the United Kingdom.

Meanwhile, the National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC) regulate forex trades in the U.S.

Due to many traders heavily using leverage in forex trades, developing countries like China and India restrict the capital you can use for forex trading.

Understanding Currency Pairs

Every transaction you make on the forex market involves simultaneously buying and selling two currencies. The following sections explain currency pairs and the kinds of such pairs you can trade.

What Is a Currency Pair?

A currency pair consists of a quote currency and a base currency. The pair’s price depends on how much of the quote currency you need in order to buy one unit of the base currency. If your quote currency is the U.S. dollar and you want to trade it for the euro, your currency pair should indicate how much U.S. dollars you need to buy one euro.

Types of Currency Pairs

Depending on the currencies you’re trading, currency pairs can be major, minor, or exotic. The following sections discuss these types of pairs.

Major Currency Pairs

Major currency pairs consist of currencies thought to drive most of the forex market and account for more than 80% of daily forex trade volume.

Currency pairs under this category include the following:

  •   EUR/USD: Euro and U.S. dollar
  •   GBP/USD: British pound and U.S. dollar
  •   NZD/USD: New Zealand dollar and U.S. dollar
  •   USD/JPY: U.S. dollar and Japanese yen
  •   USD/CAD: U.S. dollar and Canadian dollar
  •   AUD/USD: Australian dollar and U.S. dollar
  •   USD/CHF: U.S. dollar and Swiss franc

These currency pairs typically have high liquidity and have the lowest spreads. These pairs are less prone to slippage (the trade executes at a price different from the expected price) and are often associated with stable, well-managed economies.

Minor Currency Pairs

Minor currency pairs are also called cross-currency pairs or crosses. One significant characteristic of these pairs is that they don’t contain the U.S. dollar. Minor currency pairs have slightly wider spreads and are sufficiently liquid, although not as liquid as their major counterparts.

Examples of minor currency pairs are as follows:

  •   EUR/GBP: Euro and British pound
  •   EUR/AUD: Euro and Australian dollar
  •   EUR/CAD: Euro and Canadian dollar
  •   CAD/JPY: Canadian dollar and Japanese yen

Exotic Currency Pairs

Exotic currency pairs comprise currencies from emerging markets. These pairs significantly differ in liquidity and spread compared to the major and minor ones.

These pairs consist of one major currency and the currency of an emerging economy. Some of these exotic currency pairs are as follows:

  •   USD/SGD: U.S. dollar and Singapore dollar
  •   USD/HKD: U.S. dollar and Hong Kong dollar
  •   USD/THB: U.S. dollar and Thai baht
  •   USD/SEK: U.S. dollar and Swedish krona
  •   EUR/TRY: Euro and Turkish lira

Brackets

Bracketing involves placing two orders, a buy and a sell, on a currency pair simultaneously. You can place these orders at a predetermined distance from the current market price, creating a bracket around that price.

The bracket width is the distance between the buy and sell orders. This width is typically a fixed percentage of the current market price.

Suppose the current market price of the EUR/USD pair is 1.2000, and you’re considering setting a bracket width of 50 pips (equal to 0.0050). You can place a buy order at 1.2050 (1.2000 + 50 pips = 1.2050) and a sell order at 1.1950 (1.2000 – 50 pips = 1.1950).

You can adjust the bracket width according to your preferences and the currency pair’s volatility.

Base Currency

The base currency appears on the left side of a currency pair notation. When you buy or sell currencies, you exchange one unit of the base currency for whatever is the quote currency’s value.

Suppose your currency pair is USD/EUR. Your base currency is the U.S. dollar ($), and the euro (€) is your quote currency. As of April 25, 2023, $1 equals €0.91.

Is Forex Good for Beginners? Risks Every Beginner Should Be Aware of

If you’re a beginner trader looking to earn extra money from the comfort of your home, consider forex trading an attractive income source. However, forex can be disadvantageous if you aren’t able or willing to commit to learning the ins and outs of forex trading.

Forex offers individuals with a sufficient knowledge foundation and who can control their emotions an excellent opportunity to generate income through part-time trading or a full-time career.

Forex can be a loss-making nightmare if you have no time or desire to undergo a rigorous learning process. But if you have the knowledge, experience, patience, and discipline to learn from your mistakes, forex trading can be profitable.

“Can I Learn Forex Myself?”

You can learn forex on your own by reading books about trading or watching video tutorials online. Consider opening a demo account with a broker and try forex trading without any risks to understand how trading works.

Pros and Cons of Trading Forex

Some of the advantages of trading forex are as follows:

  •   Forex markets offer the most liquidity and have the largest daily trading volume worldwide. These features make it easy to buy and sell major currencies within a second for small spreads in most market conditions.
  •   The forex market trades 24 hours daily, five and a half days a week, beginning in Australia and ending in New York. This broad time horizon and coverage provide plenty of opportunities to make profits or cover losses.

Major forex markets include New York, London, Tokyo, Frankfurt, Hong Kong, Sydney, Paris, Singapore, and Zurich.

  •   Leverage in forex trading allows a trader’s starting capital to multiply rapidly.
  •   Forex generally follows the same trading rules as stocks. However, it requires much less initial capital, making starting forex trading easier than stock trading.
  •   Because the forex market has no centralised exchange dominating currency trade operations, the possibility for manipulation, such as through insider information, is lower.

Forex trading also has some risks. These cons include the following:

  •   Trading forex with leverage can create more volatility than trading without leverage.
  •   Leverage ratios in the 50-to-1 range are common in forex, although some brokers can offer even greater leverage ratios. Inexperienced traders may experience significant losses if they use more leverage than necessary for their objectives.
  •   Being decentralised means forex is a less regulated market than other financial markets.
  •   A currency trader must have a broad understanding of the economies of various countries to grasp the fundamentals that drive these countries’ currency values.
  •   Forex markets lack tools that provide or ensure regular income. Such instruments include regular dividend payments, which can attract potential investors not interested in exponential returns.

Key Takeaways

A few takeaways about forex trading to note are the following:

  •   Forex markets have a worldwide reach regarding trade, commerce and finance, making forex the world’s largest and most liquid of all asset markets.
  •   Traders can exchange currencies through spot (cash) and derivatives markets or by offering forwards, futures, options, and currency swaps.
  •   Some market participants use forex to speculate on geopolitical events, hedge against international currency and interest rate risk and diversify their portfolios.

Trading Forex Step-by-Step Guide: How to Forex Trade for Beginners

What steps must you take to start trading forex? The following sections serve as a guide for beginners interested in earning money from forex trading.

Start With Demo Trades

Many forex brokers allow you to sign up for a demo account to practice your trades without using real money. This feature removes the risk of financial loss and gives you access to the tools you need to experience what actual forex trading feels like.

When practising with your demo account, note how you react when you gain or lose money. Practising discipline helps you avoid losing too much when trades don’t go well and stick to your plan when things appear to be going well. You can learn how to employ risk management from this experience.

You can also get too excited to start trading with real money. Take your time with your demo period, and do not rush things. Instead, use this practice time to learn strategies, try different techniques, experiment with currency pairs and get comfortable using various tools and types of trades.

Breaking Down Forex Trading

Forex trading is one of the most popular types of trading in the financial field. If you have bought or sold goods and services, you may know how vital currencies are to almost everyone worldwide. One reason is that you use currencies as a medium to conduct business and trade.

Suppose you want to buy a product from overseas and find out that an online store sells this product. You then add this item to your online shopping cart and check out the product for purchase.

During this transaction, the money you use to pay for the product, usually in your local currency, gets converted to the equivalent value of the origin country’s local currency. This conversion from one currency to another works in the same concept as forex trading.

Use Micro Accounts

A demo account may help you gain experience in forex trading. However, for some people, putting pretend cash on the line may not feel the same as risking real, hard-earned money.

If you think you’re comfortable moving away from demo trading but aren’t ready to commit most of your capital to real forex trading, consider starting with a micro account to limit your transactions to smaller trades.

Every profit or loss in your trades impacts your finances when you use real money. Micro accounts help you learn more about responsible trading than demo accounts, books, or self-help guides can do.

Micro accounts can limit how much you can trade, so use this opportunity to gain a deeper, practical understanding of forex trading before you start leveraging or choosing highly volatile currency pairs.

Take Time to Learn

Forex trading can be challenging for beginners, so educate yourself on the various markets, terms, strategies, and probabilities. Some brokers provide training materials for forex trading or how the platform works. You can also look for online guides and video tutorials.

Research Currency Pairs

Understand how currency pairs work before you start trading. Traders who understand which pairs offer the best returns on investment (ROI) and which ones to avoid are better positioned to earn from forex trading.

For example, EUR/USD is among the most stable currency pairs, making it suitable for you to begin trading.

Once you become comfortable with the more stable pairs, consider trading more volatile combinations, such as exotic currency pairs.

Keep an economic calendar on hand to track the latest news and announcements affecting currencies to keep up with or stay ahead of price movements.

How Beginners Can Trade Forex – Making Trades

Before you place a trade, decide what kind of trade you want. Such decisions include whether to go long (buy) or short (sell), how big the spread (difference between the ask and bid price) is, and how much you must spend.

“Which Currencies Can I Trade in?”

Any currency pair that your forex broker offers is available for trading.

Taurex offers trading opportunities in over 50 currency pairs, including major, minor, and exotic. Traded pairs include EUR/USD, GBP/USD, and USD/JPY.

Price and Quote

When you trade forex, you usually see a currency pair’s bid and ask prices. The ask price is the amount at which you can buy currency, while the bid price is the value at which you can sell currency.

Long Trade

Going long means you buy a currency expecting its value to increase. You can sell the currency later to profit on the difference between the asset’s purchase and sale prices.

Short Trade

Going short means selling a currency with the expectation that its price will decrease. You can buy back the asset at a lower value and benefit from the difference.

Fundamental Analysis

Conducting fundamental analysis involves determining why a forex market reacts like it does. Numerous environmental factors like a country’s economic strength, political factors, market sentiment, and social factors can affect that country’s currency’s value.

The following indicators can help you perform a fundamental analysis:

News and Economic Data

Many banks and investors look for strong economies to place funds with the expectation that these investors’ capital will rise in value.

Demand for the currencies in those economies can increase as the economic outlook encourages more investment. Any financial reports and news backing up this outlook may encourage traders to want to buy that country’s currency.

Central Bank and Government Policy

Governments determine their countries’ fiscal policies through spending or collecting taxes to grow or slow the economy. Such policies can also affect exchange rates.

Meanwhile, central banks determine monetary policy, which controls money supply and interest rates.

The policy types and tools governments and central banks use can affect the supply and demand of nations’ currencies.

Technical Analysis

Suppose you’re a forex trader who prefers technical analysis. You’re more likely to focus on studying price action and trends on the price charts. These movements can help you identify clues about supply and demand levels.

Technical analysis can also help you interpret chart patterns and find the right time and price level to enter or exit the market.

Charts Used in Forex Trading: How to Read Forex Charts for Beginners

When you want to analyse the exchange rate in the live charts, you have three options to view those charts on your trading platform: line charts, bar charts, and candlestick charts.

Line Charts

A line chart features a line that connects each trading day’s closing prices within your chosen time frame.

Line charts are the most basic chart type you can use to identify big-picture trends. Unlike the other chart types, these charts don’t provide much else.

OHLC Bar Charts

An OHLC (open, high, low, and close) chart shows a bar for each period, such as one trading day, that you choose to view. This chart provides more detail than the line chart, as each bar shows the day’s opening, high, low, and closing values.

When you view the bar, you’ll see a dash on the left representing the opening price and a dash on the right indicating the closing price.

The top of the bar represents the highest price that the asset traded during the selected period, while the bar’s bottom is the lowest traded price.

If the bar is green, the closing price is higher than the opening price. If the bar is red, the close is lower than the open.

The OHLC charts can help you identify whether the buyers or sellers control the market.

Candlestick Charts

This chart uses a vertical line to show the high-to-low range and opening and closing prices. While candlesticks and bar charts are similarly separated into different timeframes, the difference is that the candlestick chart has a “body” covering the opening and closing prices and “wicks” showing the high and low prices.

If the candlestick is filled, the currency pair’s closing price is lower than the opening. But if the candlestick is hollow, the closing value is higher than the opening price.

How Do You Start Trading With a Forex Broker?

You can start trading forex after signing up with a broker and funding your account.

When choosing a broker, always select a licensed, regulated broker with a reputable track record. These brokers will prioritise the protection of your funds so you can have peace of mind.

Forex Trading Strategies for Beginners

Anyone with enough money can start trading forex. However, it takes knowledge, experience and a few strategies to improve your chances of profiting from this activity. If you’re a beginner trader, consider the following strategies to help you earn money in forex trading.

Breakout

Markets can swing between support and resistance levels in an action called consolidation. Breakouts may occur when the market moves past the limits of these levels, and the asset may reach new highs or lows. You can use these breaks as trading signals.

Breakouts usually happen first before a new trend occurs. Therefore, you can consider breaks as possible signs of a new trend.

The challenge is that not all breaks lead to new trends. If the breakout doesn’t happen, use a stop-loss to prevent losing significant money.

Moving Average Cross

Moving averages are lagging indicators that move slower than the current market price and use historical price data more than most strategies. You’ll typically see two lines: a short-term and a long-term moving average line.

If the short-term line moves above the long-term moving average, the most recent prices are higher than the oldest. This action suggests an upward trend and can be a buy signal.

Alternatively, when the short-term line moves below the long-term moving average, this action suggests a downward trend and a potential sell signal.

Donchian Channels

When using the Donchian channels, you can modify their parameters according to your preferences. For example, you can analyse the highest highs and lowest lows for a user-defined period, such as 20 days.

Using this example, a break in the Donchian channel can indicate one of two opportunities:

  •   Buy if the market price exceeds the last 20 periods’ highest high.
  •   Sell if the market price exceeds the last 20 periods’ lowest low.

Trend Trading Strategy

A trend trading strategy is among the most widely used forex trading approaches. This strategy uses technical indicators to help you identify the direction of the market momentum and decide whether to go long (buy) or short (sell) accordingly.

Trend trading strategy relies on the expectation that forex markets behave in a particular way based on historical trends and movements to help with future forecasts.

Still, implementing a solid risk management strategy is crucial since a currency pair’s past performance doesn’t guarantee future price movements.

Well-known technical indicators that can help you identify forex trading trends are moving averages, average directional index, and relative strength index, as will be described in the succeeding sections.

Moving Averages

The moving average (M.A.) helps you find a forex pair’s price over a specific time frame. The different types of M.A. include:

  •   Simple moving averages (SMAs): Function as a straightforward calculation of the mean price of several values over a given period.
  •   Exponential moving averages (EMAs): Focus more on recent prices to make the data more responsive to new information.

Relative Strength Index

Relative strength index (RSI) looks into the average gains and losses over a specific period to determine whether the asset has positive or negative price movements. You can also use RSI to identify price momentum and overbought or oversold conditions.

Average Directional Index

The average directional index (ADX) can help you determine the strength of a currency’s upward or downward price trend. The ADX indicator line moves between zero and 100. Any value above 25 can indicate a strong trend.

Range Trading Strategy

Range trading is a popular strategy among beginners since it’s one of the less complicated trading techniques. You can consider a market to be trading in a range when it moves between two price levels consistently. You can discover upward or downward trends within that range.

When you trade using this strategy, consider going long when the trend rises and going short when the trend falls. You can trade this way in short- and long-term time frames.

Breakout Trading Strategy

If you want to enter or exit a position when the volatile period starts, consider breakout trading as your strategy. Some forex traders prefer heightened volatility as it provides more trading opportunities.

A breakout occurs when the currency pair’s price suddenly moves out of a consolidated range, breaking out of the pair’s support or resistance level.

To implement this strategy, consider opening your position early within the new trend and placing a stop-loss limit at the level where the market broke out.

Momentum Trading Strategy

Momentum trading focuses on a trend’s strength. It works on the principle that a strong enough trend, whether upward or downward, will likely continue in the same direction.

To use this strategy, you should open your position when the trend you’re following gains momentum and close your trade when the trend starts slowing down. Analyse the market’s volatility, volume, and timeframes to determine the momentum.

News Trading Strategy

Trading based on news is a traditional strategy you can still apply to forex. Many news events like elections can affect a currency pair’s price.

If you want to trade a specific currency pair based on this strategy, follow these news events and analyse the charts to see how these events affect those currencies.

Suppose you’re trading the EUR/USD pair. In this case, you should follow relevant U.S. and European news updates, including monetary policy changes, elections, interest rate changes, and other events that can cause a rise or fall in the currency pair’s value.

Carry Trade Strategy

This strategy aims to help you profit from the interest rate difference between currencies in a forex pair. Currency carry has two trading strategies:

  •   Positive currency carry: Involves borrowing a low-interest-rate currency and buying a high-interest-rate currency.
  •   Negative currency carry: Involves borrowing a currency with a high interest rate and buying currency with low interest.

Positive carry trades may result in an initial net gain with a possible net loss. Meanwhile, negative carry trades may lead to an initial net loss with a potential net profit.

MACD Trading Strategy

The moving average convergence divergence (MACD) helps you find the end of one trend and the start of another. If you’re a beginner forex trader trying to navigate various trading indicators, this strategy may be helpful for you.

This indicator consists of three parts:

  •   MACD line: Consists of a blue line created by subtracting the 26-period M.A. from the 12-period M.A.
  •   Signal line: Appears as a red line representing the 9-period M.A.
  •   Histogram: Displays the MACD formed by the lines crossing through each other

If the MACD line crosses above the signal line, that event may be a buy signal. You can consider selling your position if the MACD line goes below the signal line.

Forex Trading Systems

After learning the different forex trading strategies, choose a trading system or method. If you’re a beginner, consider using any of the following systems:

  •   Currency scalping: Consists of buying and selling currency pairs in short periods, usually within seconds or up to a few hours.

This strategy involves making small profits in multiple trades to make those profits accumulate.

  •   Intraday trading: Focuses on one- to four-hour price trends and trading within those periods.
  •   Swing trading: Focuses on medium-term price movements typically larger than scalping or intraday trading. As a swing trader, you can keep your trades open for several days or weeks. If you have work, consider this type of trading as a complementary income source.

Forex Trading Platforms for Beginners

When looking for a forex trading platform, choose one that fits your needs and trading goals. Additionally, consider choosing a platform that has the following elements:

  •   Analysis
  •   Automated trading functionality
  •   Trust
  •   Independent account management
  •   Security

Forex Mobile Trading App

If you prefer trading on your tablet or mobile, download the MetaTrader app from Google Play or the App Store. Open the app and log in to your brokerage account to begin trading.

Forex Trading Examples

Suppose you trade the USD/GBP pair and buy $50 worth of British pounds, trading at £0.8011 to a dollar. If the pound’s value increases to £0.8021 to a dollar and you decide to sell, you earn 10 pips per dollar you spend, or £0.001 (£0.8021 – £0.8011 = £0.001).

If you spend $50 in this trade, your total profit should be £0.05 (£0.001 x 50 = £0.05).

Forex Trading Tips for Beginners Wanting to Earn

The tips below can help you excel in trading and avoid making simple mistakes.

Know Your Markets

One effective way to help you avoid trading losses is by educating yourself on the currency pairs and what influences their prices before you risk your funds.

Education can help you avoid mistakes or cut losses that cost more than you can afford. Learning the forex market and how to trade in it is a time investment that can help you prevent stress and loss of funds.

Stick to Your Plan

Implementing a trading plan is essential in your strategy to avoid losses. Include your profit goals, risk tolerance level, methodology and evaluation criteria in your plan.

After creating your plan, ensure that each trade you make doesn’t fall outside your plan’s parameters.

Practice

Many online brokers provide a free demo account for you to practice trading without using real money. You can test your trading plan in a demo account without risking your capital.

Forecast the Market Conditions

Using fundamental analysis, you can forecast the markets based on what happens in the news or other significant political and financial events. 

You can also predict market movements using technical analysis tools like moving averages, retracements and other indicators.

Know Your Limits

Knowing your limits means knowing when to exit a losing trade instead of holding your position, which may lead to more substantial losses. Consider setting stop-loss levels and using a leverage ratio based on your needs. Remember not to risk more money than you can lose comfortably.

Know When to Stop

Whether forex trading is your full-time career or a part-time hobby, it’s unlikely that you’ll have enough time to sit and watch the forex markets all day.

To effectively use your time, consider using stop-loss and limit orders to help manage your risk, protect potential profits and exit the market at the specified price.

Leave Your Emotions Outside the Door

Suppose you have an open position, but the market isn’t moving your way. You may become emotional and try to recover your losses with a few trades that aren’t part of your trading plan.

Don’t let emotions get in the way of successful trading. Try not to rush and go all-in to recover your losses after a losing trade. Stick to your plan and recover your losses gradually.

Stay Slow and Steady

Consistency is a crucial trait in forex trading. Most traders, if not all, have lost money trading forex. But you still have a better chance of succeeding in trading foreign currency if you don’t rush things.

While education and following a trading plan are good practices, sticking to your plan through patience and discipline can also help.

Do Not Fear Growth

Although consistency is essential, you don’t necessarily have to repeat things continuously. Occasionally, reevaluate your trading plan and make necessary adjustments, especially if things don’t work as expected.

Your goals can change as your trading experience grows, so update your plan to reflect these changing goals.

Choose the Right Broker for You

The right trading partner can be critical to your success in the forex market. Essential factors like pricing, execution, and the quality of a broker’s customer service can make a difference in your trading experience.

Trading Terminology: Forex Trading Notes for Beginners

Part of your education as a beginner trader is understanding the various terms you’ll likely encounter when trading. The following section will discuss these terminologies.

Spot Forex

Spot trading involves buying and selling real currency. Suppose you buy a specific amount of British pounds and exchange them for euros. If the pound’s value increases, you can exchange your euros for pounds again. This way, you receive more money than what you initially used for the purchase.

Pip

A pip is the base unit of a currency pair’s price or 0.0001 of the quoted price among non-Japanese yen currency pairs. If the currency pair’s bid price goes from 1.1555 to 1.1556, the difference is one pip (1.1556 – 1.1555 = 0.0001).

Spread

The spread is the difference between a currency pair’s purchase (bid) and sale (ask) prices.

Margin

The money retained in your trading account when opening a trade is the margin. Some retail forex traders may need more margin to trade at a high enough volume to earn a reasonable profit. In this case, forex brokers can offer their clients access to leverage.

Leverage

Leverage is the capital a forex broker provides clients to increase their trade volume. A 10-to-1 leverage ratio means traders can purchase currencies worth 10 times their deposit.

Bear Market

This situation is when the stock market is moving in a downward trend or when the prices of stocks are falling.

Bull Market

In a bull market, stocks are experiencing a period of rising prices.

Beta

This metric indicates the position of a stock’s price relative to the entire market’s movement. A stock with a beta of 1.2 means that when the market moves by 1 point, this stock moves by 1.2 points.

Broker

A broker is an individual or company that facilitates the buying and selling of an instrument through a trading platform. Brokers typically charge commissions for their services.

Bid

The bid is the price buyers will pay per share. This price is set against the ask price, which is what sellers will sell their shares for.

Exchange

An exchange is where you can place trades. Well-known stock exchanges include the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE).

Close

The close is the time an exchange closes and trading stops. The closing hour for the NYSE and NASDAQ (National Association of Securities Dealers Automated Quotations) is 4:30 PM Eastern Time (ET). However, after-hours trading can continue until 8:00 PM.

An American stock market, NASDAQ oversees electronic securities trading around the world. 

Day Trading

This trading strategy occurs when traders buy and sell within a day.

Dividend

Dividends are a proportion of a company’s earnings paid to its shareholders. The company pays out dividends annually or quarterly (four times yearly). Not all companies pay dividends to shareholders.

Blue Chip Stocks

These stocks belong to large, industry-leading firms. Consider investing in blue chip stocks if you prefer receiving stable dividends from reputable companies with sound fiscal management.

Need to Know More About Trading Forex?

Taurex is an online broker that provides a trading platform for financial instruments and markets. We strive to become a go-to resource for traders who want to learn more about the industry, including forex trading.

FAQs

  1. What is trading?

Trading is the buying and selling of an asset to make a profit. You can trade financial instruments over a centralised exchange or OTC.

  1.   What is an online forex broker?

An online forex broker is an intermediary that enables retail traders to access online trading platforms to speculate and trade on currencies’ price movements.

Many online brokers offer leverage to allow traders to control a significant forex position, even with a small deposit.

  1. What is a forex trader?

A forex trader holds a position in a currency pair to gain a profit or loss by trading that pair.

  1. Is forex trading profitable?

Forex trading can be profitable if you implement the appropriate strategies and risk management methods. Remember that trading has risks, and you should only trade what you can afford to lose.

References

  1. What Is Forex Trading? A Beginner’s Guide https://www.investopedia.com/articles/forex/11/why-trade-forex.asp
  2. Foreign Exchange Market: How It Works, History, and Pros and Cons https://www.investopedia.com/terms/forex/f/foreign-exchange-markets.asp

 The information provided in this article is for general informational purposes only and does not constitute financial advice. It is not intended to be a recommendation to buy or sell any financial instrument or engage in any investment activity.

While we strive to provide accurate and up-to-date information, we do not guarantee its completeness or accuracy. We rely on various sources for the information presented, and we cannot guarantee the reliability or accuracy of these sources.

The information provided here does not necessarily reflect the products or services offered by our company. Any mention of financial products or services is for informational purposes only and should not be considered an endorsement.

All investments involve risk, including the potential for loss of principal.

This information should not be considered as financial advice. You should always seek professional financial advice from a qualified advisor before making any investment decisions.

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