Forex Trading for Beginners

Forex Trading for Beginners

The Foreign Exchange market (also referred to as the Forex or FX market) is the largest financial market in the world, with over $1.5 trillion changing hands every day.

The Forex trading for beginners’ guide will cover all the information you need on how you can start FX trading. We’ll cover how to trade Forex for beginners, which will equip you with the right knowledge to tackle the world’s largest capital market. As a bonus, in order to make things run smoothly for you, we’re going to reveal which is the best forex trading platform for beginners.

The Foreign Exchange Market is by far the biggest market in the world in terms of liquidity and trading volume. It’s estimate that, on average, more than $5 trillion are transact on a daily basis. It’s no surprise, trading in the Forex market is so exciting. Forex trading is free and it’s very cheap to get started as a trader in the FX market. Once you are able to hone your skills, you may be able to trade forex full time.

What is Forex Trading?

Forex is an abbreviation for the foreign exchange market. In the financial world, Forex trading is also known as FX trading, currency trading, or foreign exchange trading which can be use interchangeably.

Unlike stocks which are traded on a stock exchange like the NYSE, the global Forex market is a decentralized market. Most Forex transactions are carried out over-the-counter or off-exchange. Stocks are listed on physical public exchanges, but Forex currencies have no physical location.

Check out the step-by-step process to follow before you start engaging in the over-the-counter market: Over-the Counter Trading – How the Whales Trade.

The biggest players that operate in the FX market are the big banks, governments, major corporations, and hedge funds.

How to Trade Forex for Beginners?

The basic foundation of trading in the foreign exchange market consists of firstly understanding how currencies are quote and what the exchange rates represent. In the Forex market, all currencies are quote in pairs. Which is why the act of Forex trading involves simultaneously buying one currency against another currency, which is sold.

Type of Currency Pairs

Depending on how much trading volume a currency is carrying out, we can split currencies into three major categories:

  • Major Currency Pairs: These are all the currencies that are trade against the US Dollar, the world’s reserve currency. Eg: EUR/USD, GBP/USD, and USD/PY. The major pairs offer the biggest liquidity with EUR/USD being the most liquid currency pair.
  • Minor Currency Pairs: Also referred to as cross pairs and are currency pairs that don’t trade against the US Dollar. Eg: EUR/GBP or EUR/CHF. They offer less liquidity for trading.
  • Exotic Currency Pairs: Also referred to as minor pairs, are currencies link to the emerging economies around the world. Eg: South African Rand, Brasilian Real, and Turkish lira.

How to Read and Understand Forex Quotes

The standard quotation system uses a three-letter abbreviation system and will always involve two currencies where the first currency listed on the left is the Base currency while on the right is the Quote currency. The quoted price indicates how much of Quote currency is required to buy/sell one unit of Base currency.

The next thing to understand is that currency pairs always have two prices: the Bid price and the Ask price. This is the two-way quote system used for buying and selling of currencies. In simple terms, the Bid price is the price at which you can sell while the Ask price is the price at which you can buy.

How to Use Forex Orders

Forex order is a command given to your broker that shows:

  • What currency pair to buy/sell
  • The direction of your trade (Long or Short)
  • The price to buy/sell
  • Where to Take Profit
  • Where to Exit
  • How much quantity to buy/sell
  • The type of order

Direction wise, a forex orders can be use to do two things:

  • Buy (Long) – If you expect the currency pair to rise, we use a buy order that is executed at the Ask price and closed at the Bid price.
  • Sell (Short) – If you expect the currency pair to fall, we use a sell order that is executed at the Bid price and closed at the Ask price.
how to trade forex for beginners

There are five common order types that anyone can use to enter and exit a position in the Forex market:

  1. Market order is design to open a trade immediately at the best available market price. It can be use for both buying and selling. This order guarantees that the trade will be execute, but in volatile markets, the entry price can be slightly different than the last price quoted.
  2. Limit Order is design to open a trade at a specific price and an expiration date. It can be use for both buying and selling. This order only guarantees that your trade will be execute at the desired price. For longs, the trigger price needs to be below the market price. For shorts, the trigger price needs to be above the market price.
  3. Stop Order is design to buy when the trigger price is above the current market price and sell when the trigger price is below the current market price.
  4. Stop-loss order is design to limit your losses and avert from potentially losing all your capital. If you’re buying and the exchange rate starts to go down the stop-loss order will automatically liquidate your position and minimize the loss.
  5. Take profit order is design to close a profitable trade and lock in the profits.

Best Forex Trading Platform for Beginners

The best forex trading platform for beginners is the MetaTrader4 platform developed by MetaQuotes Software. The MT4 platform is one of the most popular Forex trading platforms utilized by millions of retail Forex traders around the world. Its features can be use by both experienced and beginning forex traders alike.

The MetaTrader 4 is free and it comes with many built-in features. There are countless technical indicators that can help you analyze a Forex price chart. Additionally, you can use the MT4 to build your own automated trading strategy and backtest any kind of trading ideas you might have.

Learn how to backtest your trading strategies even if you don’t have any experience with our Beginners’ Guide to Effective Backtesting.

Alternatively, you can use the web-based trading platform TradingView, which is another free Forex trading platform that has the same features as the MT4 platform and much more.

Without a forex trading strategy to advance your trading skills, a trading platform is useless. This is why we want to also explore the wide range of forex trading strategies