How to begin Forex trading
Learn how to begin Forex trading
Are you wondering whether you can achieve success by trading the foreign exchange market? Then you need to learn how to begin forex trading. However, knowing how to get started with your first trade may not always be as simple as you thought. Here, we take a look at some of the basics of forex trading to help you launch your professional trading career.
The world of forex trading can be a complex and risky one. There are a lot of potential pitfalls that are waiting for you, so it’s important to follow some vital principles to make sure you avoid some of the most common errors that could lead to significant and even devastating losses.
For example, you need to learn how to manage your expectations and your emotions effectively, and to avoid investing more money that you’re able to afford to lose. Avoiding overtrading is key to minimising your risks, while taking the time to familiarise yourself fully with the markets couldn’t be more important when it comes to understanding the best trades to make at any given time. Essentially, you need to have an in-depth knowledge before you even begin to trade seriously.
In this helpful guide to how to begin forex trading, we’ll address questions like which resources to use, which strategies to follow, and how to choose a broker along with other key elements of trading to help you get off to the best possible start.
Learning how to begin Forex trading from scratch – initial key principles to follow
When you’re starting out as a complete beginner in the world of foreign exchange trading, there are a few vital principles that you need to adhere to in order to minimise the level of risk that you face.
- Learn to manage your expectations.
- Before you even make your first trade, it’s imperative to have the right mindset. Don’t go into forex trading with a focus solely on profit as this will cloud your judgement and make it harder to think clearly about which trades are worth making and which should be avoided.
- Define your risk profile.
- Before you can place your first trade, you need to set yourself some limits with regard to how much you’re prepared to invest and the level of risk that you’re prepared to take. Never invest more money in any trade than you’re able to afford to lose. Decide on a maximum investment amount and never exceed it, no matter what happens.
- Choose your trading strategy.
- Before you can choose a trading strategy, of course, you need to understand the options that are open to you. You need to do your research well and decide on a strategy that suits you. Once you’ve chosen a strategy to focus on, educate yourself about it and develop your skills. Once you’ve learned as much as possible, move onto another strategy and begin learning about that one.
- Master your emotions.
- It couldn’t be more important to keep your emotions out of your trading decisions. It can be all-too-easy to overtrade in an attempt to recoup losses, but this only exposes you to more risk. It’s important to choose your strategy and stick to it, relying on the data and indicators.
- Use protective measures.
- Using take profits and stop losses will protect you from significant losses when trading. Stop losses will protect you if the market experiences a deep, rapid fall, while using take profits will ensure you can capitalise on your profits if the market goes up.
- Stay up to date with the markets.
- Following the events in the financial markets will ensure you’re up to date with the current major events and trends that could have an impact on international currencies.
- Minimise your exposure to risk.
- When you’re starting out with forex trading, avoid overtrading to minimise your exposure to risk. Ensure that opportunities that you’re taking advantage of really are opportunities which entail minimal risk.
- Understand that losing is inevitable.
- No trader will go their entire trading career without experiencing a loss. Even top professionals incur losses over time. Understand that losing is inevitable. No trader will go their entire trading career without experiencing a loss. Even top professionals incur losses over time. Having realistic expectations will help you to steer clear of emotional trading.
- Have a defined trading plan.
- It’s important to come up with a clear trading plan dictating all your trade activities. That helps you to avoid any bad habits from developing.
- Use the best broker for you.
- It’s possible to eliminate significant possible losses right from the get-go by selecting the best broker.
Educating yourself about trading strategies
Many people ask the question “is forex trading profitable?” The answer is that it can be, but at the same time, it can also lead to significant losses. If you’re considering investing in the forex market, the most important thing is to have a clear understanding of how the market works and the trading strategies that you could adopt.
There are plenty of educational resources out there, both online and in the form of books, that can help you to become as informed as possible about the various strategies including technical analysis and fundamental analysis that you can adopt, as well as as well as the various techniques that can be adopted such as leverage, stop losses, and take profits.
However, it isn’t all about the strategies themselves. Understanding how trading platforms work is also imperative. Finding the best forex trading platform is the first step to getting started, but you also need to develop an in-depth understanding of how it works and how you can use it to your advantage. Setting up a demo account first is the best way to get to grips with any new trading platform. You can practice trades without actually spending your own money until you feel comfortable with how the platform functions.
How to begin Forex trading – a guide to trading strategies
There are a number of different trading strategies that you can implement when forex trading, but determining which ones are right for you can prove challenging. You need to bear your personality in mind to work out which forex strategies are likely to be the best choice to suit your needs – what works well for one trading professional will be a complete failure for another.
Some popular forex trading strategies you may want to consider include:
- Scalping – this involves multiple short-term trades held sometimes for just a few minutes.
- Day trades – this involves opening a trade then closing it within the day, with the trades lasting typically for just a few hours.
- Swing trades – this involves holding a trade for a few days.
- Positional trades – this involves following a long-term trend in an attempt to maximise profit from major price shifts.
All the above trading strategies require some kind of analysis, and there are two primary kinds of analysis that you should be aware of when you learn how to begin forex trading.
The first is Technical Analysis, which involves studying a specific asset’s price patterns to spot price trends that allow you to predict future movements. Technical analysts tend to use candle patterns, indicators, and chart patterns to identify patterns and trends in the market.
The second is Fundamental Analysis which involves analysing the economy in general alongside factors including interest rates, employment rates, GDPs, manufacturing, and international trade which can have an impact on currencies’ values. The primary premise behind fundamental analysis is that the current price of any given asset may not be a true reflection of its actual value, with markets often mispricing specific assets over a short term period.
When traders perform Fundamental Analysis, they determine the real value of their chosen asset, compare it with the current price of that asset, and identify a trading opportunity before the asset returns to its correct price.
Entering the real world of Forex trading
Before you enter the real world of forex trading, there are a few more things to keep in mind. Of course, it goes without saying that before you ever place your first trade, you need to understand the basics like Forex instruments, spreads, commissions, and tools, but you also need to know how to choose the right forex trading broker to get started with.
Choosing a broker - top tips
If you cannot trust your forex broker’s financial security or reputation, you cannot focus properly on trading. That’s why it’s so essential to be confident in your broker’s reliability and trustworthiness, so you can have a clear head to analyse trades and develop clear trading strategies. If you choose the wrong broker, you could end up being subject to high fees which detract from your profits, and could even lose funds because of a lack of broker regulation. With this in mind, here are a few tips to help you choose the right broker for you:
- Make sure your chosen broker is regulated and licensed by a recognised financial body.
- Make sure that your money will be protected and insured.
- Make sure that the broker has an accessible and professional customer service team.
- Make sure that the broker is working with a trading platform that is reliable, user-friendly and that offers demo accounts so you can practice risk-free.
A step by step guide to how to begin Forex trading
- Choose a reliable and reputable broker that uses a trusted and user-friendly forex trading platform and open a demo account. This will allow you to practice getting to grips with the platform before you commit any of your own money to a trade.
- Decide how much you can afford to deposit in your trading account. Never commit more money to trading that you can afford to spend and potentially lose.
- Choose a trading strategy that you feel comfortable with and that you understand thoroughly. Make sure you stick to that strategy no matter what happens.
- Use sound principles of money management to avoid large, unexpected losses.
- Do in-depth research to determine which FX pairs you prefer to trade and make sure you stay up to date with the latest financial news to find out any market news that could impact on the foreign currency markets.
- Decide whether you wish to sell or buy based on the research that you’ve carried out.
- Place your trade with clearly defined exit and entry points, remembering to use stop-loss and take-profit orders to mitigate your risks.
- Bear in mind that closing your trade isn’t the end of your strategy – you need to reflect once you’ve exited the market. Think about how well your trade performed and use that reflection to help you make improvements on your next trade.
Improving your Forex trading
Above all things, it’s vital not to go into your first forex trade thinking that you’re going to get rich quick. That is extremely unlikely to happen and having this expectation is likely to lead you into a downward spiral. Learning how to trade foreign currencies is a very slow process, and you need to dedicate time and effort to your investment strategy.
However, if you begin conservatively, using sound money management techniques, you’ll get off to the best possible start with forex trading and, if you’re prepared to do your research and to educate yourself about the financial markets and world economies, you’ll discover which trading approaches work best for you.
If you’re ready to get started with forex trading, following the tips that we’ve outlined here is your launching point. Make sure that you’ve done your groundwork thoroughly before you even begin to think about placing your first trade and ensure that you’re fully prepared before you take your first steps into the foreign exchange market.
Not investment advice. Past performance does not guarantee or predict future performance.