Forex Guide for Beginners. Learn everything about trading forex!

Forex Guide for Beginners. Learn everything about trading!

Forex trading for beginners can be tricky. In general, this is due to unrealistic expectations, but common among newcomers to this market. The first question that comes to mind for everyone is: how to learn Forex from scratch?

Don't worry, this article is our ultimate Forex manual for beginners.

forex beginners

In this Forex Beginner's Guide you will learn:

Lets start by the beginning!

What is Forex?

Before getting more fully into how to learn to trade Forex, we must explain and be clear about what Forex is.

The Forex, or foreign exchange market (also called FX for short) is the market where currencies are traded. In its simplest form, a currency transaction can be, for example, when you change your local currency to a new one for an upcoming vacation.

Currencies trade as pairs, and the movement of currency pairs measures the value of one currency against another.

For example, the EURUSD currency pair measures the value of the euro against the US dollar:

• When the value of this pair increases, this means that the value of the Euro has increased against the value of the US dollar. 
• When the value of the pair decreases, this means that the value of the US dollar has increased (or the value of the euro has decreased).

When trading Forex and CFDs, traders can make a profit or a loss on these currency movements.

It is the most liquid market, some 6 trillion dollars are quoted daily between governments, banks, corporations and speculators.

Although after reading this trading tutorial for beginners, you are no longer a "Forex newbie", we advise you to start trading with a free demo account (click below) before trading with a real account. It is the best way to start in the Forex without money, since you will practice with virtual funds.

Trade with a demo account without risk Practice trading with virtual funds OPEN A DEMO ACCOUNT Trade with a demo account without risk

 

Types of currency pairs

The first thing you should learn about the Forex market is the concept of currency pairs. Forex currency pairs are known as major, minor, and exotic.

Major currency pairs are made up of the most frequently traded currencies, which are:

• USD - The US dollar 
• EUR - The Euro 
• JPY - The Japanese Yen 
• GBP - The British Pound 
• CHF - Swiss Franc 
• CAD - The Canadian Dollar 
• AUD - The Australian Dollar 
• NZD - The New Zealand Dollar

A major currency pair is one that contains any of these currencies paired against the US dollar, such as EURUSD, USDJPY, or GBPUSD.

There are also pairs made up of these major currencies that do not include the US dollar. These minor pairs are: 

• EURGBP 
• EURCHF 
• AUDNZD and so on. Finally, 

exotic pairs are any currency that we have not mentioned above, such as: 

• the Hong Kong dollar (HKD) 
• the Norwegian Krone (NOK) 
• the South African Rand (ZAR) 
• Thai Baht (THB) Exotic pairs include an exotic currency and a major currency.

How are asset prices quoted?

If you are a beginner in trading, both Forex and any other asset, it is very important to understand the price of assets.

The price at which currency pairs trade is based on the current exchange rate of the currencies in the pair, or the amount of the second currency you would get in exchange for one unit of the first currency.

When you select an instrument you will see the 'Ask' and 'Bid' price appear:

• The Ask price is the price at which you can buy the asset 
• The Bid price is the price at which you can sell it

One of the things that you should keep in mind when you want to learn how to trade is that you can operate both long and short, through CFDs, but you must be aware of the risks involved as it is a complex product.

long operation

Buying a currency with the expectation that its value will increase and earning a profit on the difference between the purchase price and the sale price. 

forex for beginners - buy Source: MT5 EUR USD, H1. Please note that past performance is not a reliable indicator of future results.

short operation

You sell short with the expectation that its value will decrease and you can buy at a lower value, profiting from the difference. 

forex for beginners - selling source e: MT5 EUR USD, H1. Please note that past performance is not a reliable indicator of future results.

Key Terminology for Forex Beginners

Before we go any further, let's recap the key concepts needed to learn Forex trading as a beginner:

pip

A pip is the base unit in the price of currency pairs, or 0.0001 of the quoted price.

For example, if the price of the EUR/USD pair goes from 1.16667 to 1.16677, that represents a 1 pip change.

Spread

The spread is the difference between the purchase price and the sale price of a currency pair.

For example, if the buy price of EUR/USD is 1.10000, and the ask price is 1.10005, the spread will be 0.00005, or 0.5 pips.

In any trade, the value of a currency pair will need to cross the spread before it becomes profitable, as you always start in the negative.

To continue with the previous example, if a trader opened a buy trade on EUR/USD at 1.10000, the trade will not be profitable until the value of the pair is greater than 1.10005.

For the most popular currency pairs, the spread is often low, sometimes even less than a pip! For pairs that are not traded as frequently, the spread tends to be much higher. It is essential that those who are new to trading understand how the spread works and look to trade with a broker that offers low spreads.

Margin

Margin is the money that is retained in the trading account when opening a trade. However, because the average "Retail Forex Trader" lacks the margin needed to trade high enough volume to make a good profit, many Forex brokers offer their clients access to leverage.

Leverage

This concept is a must for beginning Forex traders. Leverage is the capital provided by a broker to increase the trading volume of its clients.

In Forex, the nominal value of a contract or lot is equal to 100,000 units of the base currency. In the case of EURUSD, it would be 100,000 euros.

If you use a leverage ratio of 1:10 and have 1,000 euros in your trading account, you will be able to trade a currency pair worth 10,000 dollars.

If the trade is successful, leverage will maximize your profits by a factor of 10. Keep in mind, however, that leverage also multiplies your losses by the same degree.

How to choose a broker when you are a beginner in trading

Choosing a broker when you have no trading experience can be overwhelming, with countless options available. Below we list the criteria that must be taken into account, according to our experience:

• Regulated broker: this guarantees the safety of your funds. 
• Low spreads and platform speed. 
• Wide variety of tradable assets, so beginning traders can choose where to start. 
• customer support 
• Free training to learn to trade Forex and other assets.

Forex Trading Platform for Beginners

The trading platform is the central element of your operations and your main work tool. The characteristics that a trading platform must have, and more if you are a beginner in trading, are:

• Precision 
• Speed 
• Security 
• be intuitive 
• Easy drive 

the platforms are MetaTrader 4 and MetaTrader 5, which are the world's easiest to use multi-asset trading platforms.

Both platforms can be accessed through a variety of devices including: PC, Mac, iOS and Android devices and web browsers through the MetaTrader Webtrader platform for MT4 and MT5.

How to analyze the markets if you are a beginner in trading

While some novice traders may experience beginner's luck, this luck rarely lasts. For long-term trading success, a trader must be able to make informed decisions. These decisions are the result of analyzing the market.

Analysis is absolutely vital to trading. Charts are useful for trading ashort and long term. You must learn to read daily, weekly and monthly Forex charts.

The two general categories of trading analysis are:

• fundamental analysis
• technical analysis

fundamental analysis

Fundamental analysis is about tracking real-world events that could influence the values of the financial instruments you want to trade.

The seven economic indicators that have the greatest impact on the Forex market are:

• Gross Domestic Product (GDP). 
• The number of jobs outside of the agricultural sector (known as Non-Farm Payrolls or NFP). 
• The unemployment rate. 
• The industrial production index. 
• Retail sales. 
• Durable goods orders. 
• National bank interest rates (such as the European Central Bank or the US Federal Reserve).

Technical analysis

Technical analysis focuses on what happens on trading charts. These record the price movements of different trading instruments over time, allowing traders to identify patterns in price movements and make decisions based on the assumption that these patterns will repeat themselves in the future.

The trader can see: 

• The opening price for the period. 
• The highest price point for the period. 
• The lowest price point for the period. 
• The closing price of the period.

This information can allow traders to identify trends, make predictions about price movement, and open trades accordingly.

Types of trading styles

Now that you know how to start trading Forex, the next step is to choose the type of trading that best suits your profile.

Types of operations in trading 

• Scalping Type of trading that consists of buying and selling currency pairs in very short periods of time, generally between a few seconds and a few hours. This style is not suitable for Forex beginners. 
• Day trading It has a more conservative approach than scalping, and trades are focused on daily price trends. Trades can be open between one and four days. 
• Swing trading It is a medium-term trading approach that focuses on larger price movements than scalping or intraday trading. This means that traders can keep a trade open for weeks. This type of trading is a good option for those who operate as a supplement to their daily work.

How to manage risk if you are a beginner in Forex

Before placing your first trade, it is important to consider how to manage your risk effectively in the Forex market.

As we have already discussed, Forex trading provides the opportunity to trade with leverage. 

This means that you can use a relatively small deposit to access a larger share of the market (up to 500 times the value of your account balance, if you are a professional client). This multiplies your potential profits by the same amount. However, it also multiplies your potential losses.

For good risk management when you are learning to trade Forex you should consider the psychology of trading and money management. 

Master Trading Psychology 

While it may sound strange to discuss the topics of mindset and psychology in a guide to learning Forex, the truth is that these are some of the most important factors that separate successful traders from unsuccessful ones. 

Developing trading discipline and the ability to manage your emotions will help you stay cool under pressure. Enter and exit trades at the right time, either to cut losses or take profits before the market turns. 

Key trading psychology tips:

• Keep calm 
• Explore your risk tolerance 
• Set realistic trading goals 
• Set your limits in advance 
• prepare for the worst 

Money management or money management 

Managing your money in trading consists of implementing specific measures to increase your profits, while minimizing potential losses. 

Forex trading success has much more to do with effective money management than a handful of good trades. 

Fundamentals of money management for beginning traders: 

• Decide how you will finance your operations in advance 
• Define your level of investment 
• Calculate your risk 
• Determine the earnings required to cover any losses 
• Start with small operations

To continue developing your trading skills, it is important to continue training. To do this, you can sign up for our free online webinars:

Frequently Asked Questions for Forex Beginners

How much do I need to Start trading Forex?

For beginning traders, it's a good idea to start small and work your way up. you can open CENT ACCOUNT in your broker.Many Forex brokers have reasonable minimum deposit levels to open an account.

What are the best indicators for beginners in Forex?

When you are learning to trade Forex it is preferable to use few indicators, to be able to read the charts more easily. Many beginners choose moving averages to start with, but here you can see a list of the most used trading indicators.

Why choose Forex if you are a beginner?

Forex is the largest and most liquid market in the world and you can trade it 24 hours a day, 5 days a week. It is also easily accessible and the costs are lower than other assets.