Forex Trading for Beginners: A Complete Guide to Get Started

Learning Forex trading for beginners with regular profits is extremely challenging. On the other hand, acquiring skills in any type of profession is also demanding and involves hard work. Why should forex trading be an exception? The key to success is wanting to become a proficient trader and dedicating oneself to achieving your goals. 

There’s a lot of learning material available online, and most traders also provide their customers with certain tools to learn how to do forex trading with the help of the best forex trading platforms for beginners. Also, educate them about forex trading terminology.

Just copying the strategies of other traders will not be useful. Each trader is unique and possesses a distinct trading style. What turns out to be successful for one trader might not be as productive for you.

So the simple answer is, “Just start!”

Our beginner’s guide to forex trading will help you take the first step towards learning forex for beginners and will cover fundamentals, strategies, types of forex markets, forex terminology, best forex VPS hosting, and a step-by-step guide to how forex trading works.

With that said, let’s get started!

Basics of Forex Trading

So, let’s first understand what exactly is forex trading, and how it works. Forex, i.e., foreign exchange trading, involves the process of purchasing one currency and selling another with the aim of generating profit from the trade. The forex (FX) term is formed by a combination of two words: foreign and exchange.

According to the reports, the foreign exchange (Forex) market size has increased substantially in the past few years. It’ll rise from $752.66 billion in 2023 to $795.91 billion in 2024 at a CAGR (compound annual growth rate) of 5.7%.

Now that you know, the forex market is a marketplace where currencies are traded. One of the most peculiar features of this global market is that it doesn’t have a central marketplace. Instead of that, the currencies are traded electronically, OTC (Over The Counter). This indicates that all the transactions are carried out over computer networks between traders around the world instead of on a single centralized exchange. 

The foreign exchange market is open 24 hours a day, 5 and ½ days a week. Currencies are traded around the world, with Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo, and Zurich as the major financial hubs in nearly every time zone. This implies that the foreign exchange market starts in Tokyo and Hong Kong when the day of U.S. forex trading ends.

This market can be extremely active at any given time, with cost estimates varying continuously. 

How Does Forex Trading Work? A Step-by-step Guide

The forex trading market is the only truly nonstop trading marketplace across the world. Previously, the FX market was governed by corporate offices and big financial institutions, which performed trades on behalf of customers.

But, in the past few years, it has transformed into something more marketing-oriented, i.e., forex traders and investors of any size can take part in it. 

– Where is it located?

A fascinating aspect of the global foreign exchange market is that there’s no physical building that operates as a forex trading venue. Alternatively, it’s a sequence of connected forex trading terminals and computer networks.

The market operators include institutions, investment banks, commercial banks, and retail investors from around the globe.

– Who takes part in it?

Earlier, forex trading was very challenging for private investors until they came up with a way on the internet. The majority of forex traders were large multinational corporations, equity funds, wealthy customers, and/or high-net-worth individuals (HNWIs) because FX trading requires a great amount of capital.

Investment and commercial banks still carry out the majority of the forex trading on their customer’s behalf. However, there are plenty of opportunities for individuals and professionals to trade currencies.

Forex Trading for Beginners With Examples

Forex trading, or foreign exchange trading, includes trading multiple currencies with the objective of earning profit. 

At its center, forex trading is related to obtaining the varying values of pairs of currencies. For instance, if you assume the euro will go up in price against the U.S. dollar, an investor might purchase euros with dollars.

If the value of the euro keeps increasing regularly (i.e., the EUR/USD rate), you can sell your euros back for more dollars compared to what you’ve spent initially, thus earning a profit. 

Apart from active investing, forex trading for beginners is also utilized for hedging intentions. Hedging in forex trading is used by individuals and businesses to secure themselves from severe exchange rate fluctuations, referred to as currency risk.

For instance, a company running a business in another country can utilize forex trading to safeguard against possible losses triggered by exchange rate fluctuations abroad. By fixing a fair rate beforehand, via an FX transaction, they can minimize the danger of financial insecurity and assure more balanced profits or costs in their local currency. This feature of forex trading is useful for global businesses looking for stability in their financial management.

Another interesting aspect of forex trading when learning forex trading for beginners is high liquidity, which means it’s simple to buy and sell multiple currencies without any substantial variation in their value. Furthermore, forex traders can make use of leverage, which enables them to manage a big position with a comparatively small sum of money. 

Despite that, leverage can also cause additional losses, making foreign exchange a field that needs skills, knowledge, strategy, and a realization of the dangers involved.

Forex trading is especially different, comprising financial hubs around the world. That is, the value of the currency is impacted by several world affairs. Economic figures like interest rates, border protection, rising prices, and financial growth can hugely affect the prices of currencies.

For example, if a country’s central bank increases its interest rates, its currency can strengthen because of the superior return on capital in that currency. In the same way, political instabilities or low economic development can result in a currency devaluation.

This global interdependence makes FX trading not only a kind of economic activity but also an indication of global financial and political developments.

Learning Forex for Beginners: A Step-by-Step Guide

Set up a forex trading account

When learning forex for beginners, you’re required to open a live or demo spread betting or CFD trading account to trade on the price fluctuations of forex pairs.

Start searching for a FX pair you wish to trade

With the help of news and market analysis, keep yourself up to date with the market news that might affect forex trading and the market calendar to stay updated with market-moving incidents.

Depending on your research, decide whether you want to buy or sell

Is your analysis indicating that the base currency, i.e., the first-named currency in the FX currency pair, is likely to decline or rise? “Buy” if you think it’ll strengthen, or “sell” if you think it’ll weaken.

Stick to your strategy

Before placing an FX trade, make sure you’ve stuck to your strategy, which must consider risk management.

Place your FX Trade

According to your strategy, place your FX trade with specified entry and exit points. Remember to consider risk management conditions, including a take-profit order or stop-loss order.

Close your FX trade and speculate

By abiding by your forex trading for beginners strategy, exit the market at your projected limits. Reflect on how you performed; therefore, you can get better with every trade you make.

Best Forex Trading Platform for Beginners

When learning forex trading for beginners, the majority of the newcomers grapple with the overburden of information related to trading platforms and their inability to use the platform.

When trading FX on an online trading platform, it’s profitable to open a demo account, which authorizes you to get acclimatized to opening and closing forex trades and implementing trading strategies. 

Forex Mobile Trading App

Irrespective of your level of reading proficiency, it is important to be able to access open positions. Using the best forex trading apps in UK, you’ll be able to access all your positions and open and close trades with complete order ticking.

If you’re planning to start trading forex, you might be looking for the best forex trading software top picks for your capital gain, enhance trading performance and efficiency, and minimize risk exposures.

Types of Forex Markets

Foreign exchange is traded mainly using spot, forward, and futures markets. The spot forex market is the biggest among the three markets since it is the fundamental asset on which the other two markets, i.e., forwards and futures, are based. When everyone talks about the foreign exchange market, they’re normally speaking of the spot market. 

The other two forex markets, i.e., forwards and futures, appear to be more favorable to big companies or financial institutions that are required to safeguard their forex risks to a particular future date. 

– Spot Market

It is a market where currencies are purchased and sold depending on their trading forex value. That trading forex price is controlled by demand and supply and is evaluated depending on numerous factors, including:

• Existing interest rates
• Financial performance
• multi-governmenatal sentiment
• Increase in prices

A final deal in the spot market is referred to as a spot deal. It’s a two-way transaction where one party gives a stipulatory currency amount to the other party and takes a prescribed amount of another currency at the accepted exchange rate price. Once this position is closed, it is settled in cash.

Even though the spot market is widely known as one that copes with transactions in the present, instead of in the future, these FX trades take 2 days to settle. 

– Forwards and Futures Forex Markets

A forward forex contract is a private contract between two parties to purchase a currency at a later date at an agreed-upon price in the OTC (over-the-counter) markets. In this forex market, the contracts are traded over the counter (OTC) between two parties, who decide the terms of the agreement among themselves.

A futures contract is a standard agreement between two parties to receive the currency at a later date at an agreed-upon price. Futures markets buy and sell currencies on exchanges and not over-the-counter (OTC).

In the futures trade market, futures contracts are traded depending on a common size and settlement date on a public stock exchange like the Chicago Mercantile Exchange (CME). 

Futures agreements have certain details like the volume of trade, delivery and settlement dates, and sub-penny pricing that can’t be tailor-made. The futures exchange serves as a second party for the trader, offering clearing and settlement services. 

Contrary to the spot, forwards, and futures forex trading markets, the options forex market doesn’t buy or sell actual currencies. Instead of that, it generates contracts that show claims to a particular currency type, price per unit, and a future date for settlement. 

Both modes of contract are mandatory, and they are usually settled for cash at the exchange under consideration upon expiry, even though the agreements can also be traded before their expiry. These forex markets can provide security against risks when buying and selling currencies.

Together with forwards and futures markets, option agreements can be traded on a particular currency pair.

Utilizing the Forex Markets

There are two unique aspects of currencies as an asset category:

• Earning the interest-rate differential between two currencies.
• Earning the profit from fluctuations in the exchange rate.

Thus, you can earn a profit from the interest-rate differentials in two different currencies by purchasing the currency with heightened interest rates and lowering the currency with a low interest rate.

– Hedging in Forex

Companies running businesses in other countries are in danger because of currency value fluctuations when they trade goods and services aside from their local market. Forex markets offer an option to secure currency risks by agreeing upon a rate at which the trade can be closed. 

A trader can trade in forward markets beforehand and lock in an exchange price. Fixing the exchange price helps minimize the losses or maximize the profits, based on which currency in a pair is stronger or weaker.

– Speculation in Forex 

Several factors, including interest rates, trade flows, tourism, financial strength, and political risk, impact the demand and supply of currencies lead to daily fluctuations in the forex markets. This generates opportunities to earn profit from fluctuations that might increase or decrease one currency’s value as compared to another. A prediction about one currency losing its value is specifically similar to conceding that the other currency in the pair will strengthen. 

Forex Trading Tips for Beginners

1. Market awareness

Know both the currencies you’re buying and selling as a component of a currency pair. It is important when learning forex trading for beginners. Be abreast of the facts related to major micro-environmental events that can influence the market you’re subjected to.

2. Adhere to your trading strategy

Adhering to your trading strategy when learning forex trading for beginners will support you in taking the emotions out of your trades and deciding beforehand your entry and exit plans. This systematic approach to forex trading markets can help you maintain consistent trades and keep away from emotions.

3. Assess, evaluate and re-attempt

Trading forex is all about assessment after every trade, thereby evaluating what worked and what didn’t. When trading as a newcomer, you’ll require time to become better at trading and recognize that your investor mindset is a continuing process.

4. Stick to the standard mantra

As an element of your investor psychology, stick to the standard mantra – “let your profit run and cut your losses.” Do not get attracted to earning profit as early as possible, or be fearful of earning a loss. 

5. Select the best forex trading platform for beginners

Selecting the best forex trading platform for beginners, exceptional customer service, and constant spreads are a few of the crucial factors that help to evaluate your complete trading experience.

Fundamental Forex Trading Strategies

The simplest forms of forex trading are long and short trades, with price fluctuations notified as pips, points, and ticks. With a long trade, the trader is speculating that the currency value will rise and that the trader can earn a profit from it.

A short trade involves a speculation that the price of a currency pair will decrease. Depending on the technical research, traders can also make use of trading strategies, including breakout and moving averages, to improve their strategy towards trading. 

Based on the duration and number of trades, trading plans can be classified into four types:

• A scalp trade comprises comprehensive positions seized for seconds or minutes at most, and the revenue figures are limited concerning the number of pips.
• Day forex trades are short-lived trades where positions are seized and eliminated on a similar day. The duration of this trade could be hours or minutes.
• In the case of swing trade, the trader seizes the position for more than a day, like days or weeks.
• In the case of a position trade, the trader seizes the currency for a long time, lasting for as long as months or sometimes years.

Forex Trading Terminology

The ideal way to learn forex trading for beginners is to understand its terminology. Here are some of the most important terms to help you get started:

1. Forex account: it is used for doing currency trades. Based on its lot size, there could be 3 types of forex accounts, as follows:
   • Micro Forex accounts: These Forex accounts allow you to trade up to $1,000 worth of currencies in one lot.
   • Mini Forex accounts: These Forex accounts allow you to trade up to $10,000 worth of currencies in one lot.
   • Standard Forex accounts: These Forex accounts allow you to trade up to $100,000 worth of currencies in one lot. 
2. Ask: An ask or offer is the lowest cost at which you’re interested in purchasing a currency.
3. Bid: A bid is the cost at which you’re willing to sell a currency.
4. Contract for difference: A contract for difference, i.e., CFD, is a deviation that enables traders to speculate on the cost fluctuations of currencies without possessing the fundamental asset.
5. Leverage: Leverage is the process of utilizing borrowed capital to multiply outcomes. The forex market is attributed to high leverage, and forex traders mostly use it to improve their positions.

Different Charts Used in Forex Trading

There are mainly 3 types of charts that are used in forex trading:

1. Line Charts

Line charts in forex trading are used for identifying global trends for a currency. They’re the simplest and most common type of chart utilized by forex traders. They demonstrate the closing trading cost for a currency for the period provided by the user.

The trend lines detected in a line chart can be utilized to develop trading strategies. For instance, you can make use of the information in a trend line to discover breakouts or a trend reversal for ascending and descending costs.

A line chart is mostly useful as a starting point for detailed trading analysis. 

2. Bar Charts

Like every other case where they’re used, bar charts provide detailed price information compared to line charts. Every bar chart showcases one day of forex trading and consists of the opening price, highest price, lowest price, and closing price (OHLC) for a forex trade. A dash present on the left side indicates the day’s opening price and a corresponding one on the right side indicates the closing price.

Colors are frequently used to represent price fluctuations, with green or white utilized for periods of increasing prices and red or black for periods of declining prices. Bar charts in forex trading help traders find out if it’s a buyer’s market or a seller’s market. 

3. Candlestick Charts

Candlestick charts were first used by the Japanese rice traders in the 18th century. They’re visually more captivating and simpler to read compared to the charts explained above. The upper part of a candle is utilized for the opening and highest pricing points of a currency, whereas the lower part represents the closing and lowest pricing points.

A down candle indicates a period of lowering prices and is colored red or black, whereas an up candle represents a period of soaring prices and is colored green or white. The dispositions and shapes in candlestick charts are utilized for recognizing market direction and fluctuations. A few of the most common formations for candlestick charts are shooting stars and hanging man.

Forex Trading: Pros and Cons

Forex trading for beginners provides a great opportunity to take part in the global financial markets, however, it is important to explore both the pros and cons before getting into action.

Pros:

• Largest daily trading volume across the world.
• Trades can be done 24 hours a day, 5 and ½ days a week.
• Start-up capital can multiply rapidly.
• Often sticks to similar rules as regular trading.
• More distributed compared to conventional stock markets.

Cons: 

• Leverages might make forex trading extremely volatile.
• Needs an understanding of market fundamentals and macroeconomic figures.
• Weaker regulations compared to other markets.
• No revenue-producing instruments.

Foreign Exchange: Trading or Investing

There are two unique ways to participate in financial markets: investing and trading; each has its own goals and policies. Investing usually follows a long-term strategy, in which the aim is to slowly build wealth over a period of time.

Investors can seize the assets for months, years, or a couple of decades, with the intention of earning profit from the increase in the value of the assets or steady income via dividends.

Trading, on the contrary, includes a short-term strategy, intending to earn profit from frequent trading of assets. Traders expect to take advantage of short-lived price fluctuations and might seize the positions for a few seconds, i.e., scalping, minutes, hours, i.e., day trading, or days to weeks, i.e., swing trading. 

The traders mostly rely on technical evaluations, studying charts and patterns to find out trading opportunities instead of basic ones. Forex markets are far more popular because of the market’s high leverage, liquidity, and 24-hour availability. 

Forex Trading vs Stock Trading: An Overview

There are two major types of trading: forex trading and stock trading. Both of them involve trading assets with the aim of earning a profit, but they’ve got basic differences. In this section, we’ll be discussing forex trading vs stock trading to uncover the differences between them. 

The forex trading market is the biggest and most perfectly competitive financial market around the world, with long-drawn-out major, minor, and exotic currency pairs to buy and sell. Foreign exchange traders can make use of pips to analyze price movements in FX trading so as to evaluate if the market is going up or down.

Foreign exchange traders can utilize pips to monitor price fluctuations in FX trading to evaluate whether the market is rising or declining. The most favorite forex currency pairs are EUR/USD, GBP/USD, and USD/JPY, among others.

On the other hand, stock market trading facilitates traders to contemplate the blue-chip stock and penny stock values, the most common assets with opposing initial values. A few of the imminent shares to trade are those of well-renowned companies with greater market capitalization, like Microsoft, Apple, and Amazon. If you’re ready to take a risk on a risky investment, then penny stocks can pay back in the long run if they go right. Stock trading is one of the best ways to make money online.