If you are a beginner in Forex trading, you can easily be overwhelmed with all the guidelines, articles, and tutorials on the Internet. It's very difficult to choose your way to successful trading among a vast variety of tips and guidelines on how to get into Forex.
We want to present a guide for beginner Forex traders that will give the main ideas on how to start Forex trading in the most effective way and how to earn on purchasing and selling currencies. Professional traders have designed the Forex trader tutorial whose extensive experience helped optimize its structure and content. It offers all the necessary information to start your trading journey in 2022.
How to Get Started with Forex
To get started with Forex, you need to follow these steps:
- Initially, open a Demo account on JustMarkets;
- Second, install the MetaTrader 4 or MetaTrader 5 platform;
- Determine the amount that you can risk;
- Get your own experience;
- Start trading real money on the Live account.
A Demo account will help you to start trading from scratch. Its functionality is the same as the real account's functionality despite using virtual money. A Demo account will provide you with valuable trading experience.
You can get a new experience and learn all the particularities of the market by using technical indicators without risk.
If you want to learn Forex, we have prepared an extensive guideline on how to start trading.
- Learn about Forex. Forex is a project requiring specialized knowledge. To get started with Forex, you need to explore all the main terms used in the Forex market. You can study at courses, visit webinars, or video lectures offered by experienced traders.
- Create a brokerage account. If you want to learn Forex trading step by step, you need to start trading on the Demo account. Then you can start trading on a Live account. You may demand a period to go from the Demo account to the Live one. On the Demo account, you trade without spread. Therefore, you start losing real money because of the spread between the bid and ask price.
- Develop your own strategy. It allows you to create a roadmap for trading when you can predict and time market movement. An effective strategy is based on the real situation and finances. Forex is mostly a high-leverage environment. However, you can get a lot much more rewards than losing.
- Check your positions at the end of the day. Trading platforms provide a daily accounting of trades.
- Develop your resilience. Every day, traders face emotional roller coasters and unanswered questions, for instance, whether to hold onto your position more to get more profits or not, buy or sell a currency for that price or not, etc. A lot of questions can lead you to stress and emotional exhaustion. Therefore, it's very important not to get carried away by your trading positions and develop your resilience. You need to make decisions due to the analysis of the price trend instead of emotions and mood.
To get started with the Forex market, you need to open an account with a broker initially. A trading account provides traders with access to the Forex market and allows executing trading operations online.
A trading account resembles a bank account. With access to it, you can store, deposit, and withdraw money. Traders can apply diverse payment systems to deposit into their accounts.
For instance, JustMarkets offers its customers effective trading tools, profitable conditions, low spreads, high-quality support, easy-to-use functionality, and flexible leverage. In addition, you can choose among different trading accounts with different conditions, including Demo, Standard Cent, Standard, Pro, and Raw Spread accounts.
Here, you will find all the useful information on how to start trading with JustMarkets:
- Initially, you need to log in to your Back Office;
- Second, make a deposit by using a suitable payment method for you;
- Third, download a platform. You can choose between MT4 and MT5 trading platforms;
- Four, place an order in the MT terminal and start trading.
How Much Money I Need to Start Trading
If you are an ultimate newbie in trading, you can start trading on the Standard Cent account. It’s suitable for traders who have already traded on the Demo account but are not ready to trade on Standard or Pro accounts. You can deposit cents into this account.
While trading on the Standard Cent account, you will:
- improve your money management skills. Small amounts are the best way to develop new trading skills and get valuable trading experience;
- learn risk management;
- try real trading without investing huge amounts;
- test the Forex advisors;
- learn the services and conditions of the platform.
The Standard Cent account resembles the Standard account but allows studying trading basics without significant risks. This account allows you to trade without much stress and high losses.
A Brief Overview of the History of Forex
When it comes to the history of Forex, the first major transformation of Forex was in 1944. According to the Bretton Wood agreement, a new economic order was established. The dollar became a benchmark currency.
A new stage in the history of Forex was the Smithsonian Agreement, signed in 1971. In the USA, the dollar was pegged to gold at $38/ounce. However, in 1972, the European community tried to make currencies independent from the US Dollar. The European Joint Float was established by European countries, but it collapsed in a year.
In the 1980s, the US dollar became the world's reserve currency.
To learn Forex trading, you need to understand different strategies. There are four basic strategies used by professional traders.
Day trading belongs to the most popular active trading strategies. This strategy is a method of purchasing and selling assets during one day. Orders are closed within one day and aren't held overnight. Day traders hold multiple positions open within one day. This helps decrease the volatility level of the overnight market. Usually, this strategy is chosen by professional traders or market makers.
Benefits of the day trading strategy:
- You protect your order from overnight risk;
- Intra-day risk is limited. A day trader holds short-terms trades that last several hours. This allows protecting your assets from risks that can occur during the long-term trades.
- Flexible schedule. Day trading strategy matches people who appreciate flexibility in trading. An intra-day trader can open and close around 5 trades during the day.
Disadvantages of the day trading strategy:
- A trader should follow discipline rules. A day trading strategy requires discipline. Traders need to use a predetermined strategy and manage their risk by completing entry and exit levels.
- There are flat trades in the market. This means that a position doesn’t move within a day.
Some traders consider position trading as a buy-and-hold strategy. However, it can be considered as an active trading strategy. Position traders use longer-term charts. An order can be open from several days till several months. Position traders want to earn on both hikes and falls of the price trend. When the volatility level is high, a trend strategy is difficult to implement, and its positions are reduced.
Benefits of the position trading strategy:
- High profits. Position trading allows using high leverage since the possibility of losses is less as compared to other types of trading.
- A low level of stress. While using this trading strategy, you don’t need to check your position on a daily basis.
This strategy is used by traders when the market is highly volatile. They hold positions open for more than a day but less than trend trades. This type of traders uses a combination of technical and fundamental analysis. Usually, they open their positions for more than one session. However, this period doesn’t last more than a couple of months. Sometimes, swing traders close their positions during one trading session while the volatility of the market is very high.
Benefits of the swing trading strategy:
- Swing trading is suitable for busy people who don’t have a lot of time. You can trade using this strategy as a hobby. However, each swing trader needs to be aware of how trading patterns work.
- Multiple trading opportunities. Swing traders open short-term and long-term positions.
Disadvantages of the swing trading strategy:
- Significant losses. Position traders tend not to pay attention to minor fluctuations that can result in significant losses.
- If the trading position is held for a long time, a swap can reach a huge amount.
If you are looking for the fastest trading strategies used by active traders, pay attention to scalping trading. Scalpers identify and exploit bid-ask spreads that are a little wider or narrower than typical spreads.
A scalping trader doesn't try to exploit large moves or trade big sums. They monitor small moves that occur frequently. Using this strategy, you trade small volumes by increasing the frequency of their trades. Compared to swing traders, scalpers prefer quiet markets without sudden price movements.
Benefits of the scalping trading strategy:
- Overnight risk doesn’t threaten your assets. Scalpers close their positions within a few minutes at maximum.
- Flexibility. You don’t need to spend all your time in front of the screen if you use this strategy. Therefore, scalping trading can become your hobby.
- Multiple trading opportunities. Scalpers can open several positions simultaneously.
Read more: Forex Price Action Trading Guide in 2022
Learn About the Currencies You Trade
All the currencies are traded in pairs. You sell one currency and purchase another one in the Forex market. Almost all currencies are priced out to the fifth decimal point, the smallest price movement. However, currency pairs that contain the Japanese Yen (JPY) as the quote currency are priced to the second point.
There are three main types of currency pairs that successful Forex traders need to know. This list contains major, minor, cross, and exotic currency pairs.
Major currency pairs are the most actively traded ones on the market because they contain the USD.
The list of major currency pairs includes:
The major pairs are considered by traders as the most heavily traded ones that drive the global Forex market.
Minor currency pairs are less traded. Due to less liquidity in the market, they often experience more wild swings. This means that their spreads are often wider than major currencies.
Minor currency pairs include currency pairs:
Cross currency pairs are also minor currency pairs without the involvement of USD. For instance, GBP/JPY, EUR/AUD, and others. Historically, any trader converted their original sum into USD to trade one currency for another. The cross currency pairs were designed to miss the first step of going to USD. It sounds like something usual today. However, at that time, this broke the business functionality completely.
In addition, there are exotic currency pairs in the Forex market. Exotic currency pairs are rarely traded if they are discussed in the context of mainstream financial circles.
Exotic currency pairs include:
- and others.
Leverage in Forex: Meaning, Significance and Explanation
It is the use of borrowed money for trading, in forex and other financial areas. Money is borrowed from a broker on a trading platform, and it is made available in a user’s trading account and solely for the purposes of trading on this very platform. For example, one cannot borrow money on one platform and transfer them to another to make trades.
Leverage is a very attractive tool in that it allows using funds for trading that significantly exceed the funds owned by a trader. Leverage is not an arbitrary lump of money, though. Leverage is directly related either to a margin kept in an account or to a total capital used by a trader. Margin-based leverage equals the total transaction amount divided by the required margin. Real leverage equals the total transaction amount divided by your capital assigned for trading.
If for margin-based leverage the required margin is 1%, then for a standard trading lot of 100,000 USD divide 100,000 by 100 (percent) and multiply by 1. You will get 1,000 USD of the margin you need to deposit to start trading with leverage. The leverage ratio will be 100:1 (100,000 USD to 1,000 USD). But the margin can be as small as 0.25%, and the same calculations apply.
For real leverage example, let’s divide the same lot of 100,000 USD by 10,000 USD available in an account. We will get a 10:1 leverage ratio.
Although this trading option looks very attractive, mind that losses are also calculated based on leveraged sum but deducted from your total trading capital (your hard-earned cash). So before opting for the biggest leverage or a risky operation, calculate the potential losses from your operation in pips and see how it may affect your capital. If the loss will be bigger than 3% (in words: three percent), the step or a decision is too risky, so lower the stakes and don’t make the use of full leverage available to you. Move slowly but steadily, so to say.
What can a Trader Learn from Forex Spread?
A forex spread (or spread in any other industry) is a difference in price for buying and selling some asset. A spread is also often called the bid and ask price. That’s why every currency pair in forex features two prices, where a higher price is usually the price for buying an asset and a lower price is the price you can sell for: EUR/USD 1.13387/1.13393. A spread is evaluated in pips (the fourth digit after the decimal).
Hence, to find a spread, subtract a lower price from a higher price: 1.13393 - 1.13387 = 0.00006 or 0.6 pips per one currency unit.
Spread size can oscillate during the day, and it’s a normal trading process. It is impacted by liquidity volumes or prices volatility that also change during the day. In this case, we speak of high spread and low spread, and routinely, some currency pairs will have higher spreads and other pairs will have lower spreads. A high spread means a bigger difference between buying and selling price, and a low spread, correspondingly, means a smaller difference between a bid and ask price.
You have to keep an avid eye for such changes in a spread for currency pairs you trade. An unusually higher spread for the currency pair means that the price is very volatile or liquidity is low. A spread can grow when major events or news impact global economies.
An unusually lower spread means that prices are steady and liquidity is high, like during the main trading sessions, and when spreads are low, it’s a recommended time to trade (risks are relatively lower).
In particular, when spreads are widening fast, and you have a leveraged position open, you may receive a margin call (or which a bit later). So in times when spreads are growing rapidly, either use smaller leverages or just hold onto your position until a spread has shrunk reasonably.
Secrets and Rules of Forex Spreads Trading
Since a rapidly growing spread can wreak havoc among your carefully planned trading steps, you should know what to look for and how to counter this problem ASAP.
- Watch out for the factors that can impact a spread. These factors include volatility and liquidity for your currency pair and big announcements that can send waves across the market.
- Trade when volatility is lower and liquidity is high, and refrain from active day trading when the market is overly volatile.
- Watch out for a bigger economic agenda to know when the news may hit. At these moments, it’s better not to open leveraged positions altogether.
- Often, a widened spread will return to its more normal size in several minutes after the rapid growth, so be patient and don’t panic.
Pick the pairs that have high liquidity. Compare: EUR/USD will have a spread of 0.6 pips, and USD/TRY will have a spread of 870 pips on average. Liquidity for the first pair will be significantly higher than for the second one.
- Major currency pairs that are easily converted and highly sought are EUR/USD, GBP/USD, USD/JPY, and USD/CHF. They may see the spread spike, but the spike will be not that sharp and will flatten soon.
- Currencies of emerging markets, on the other hand, tend to have bigger spreads, like USD/MXN or USD/TRY. They are riskier to trade, and risks are built into the spread size. It’s recommended not to trade with leverage when utilizing these pairs or use very modest leverage.
Mind the time of the day when you plan operations. When the major trading sessions run at full speed or even overlap, the liquidity overflows the market. So it’s time to trade since spreads will be at their lowest. Check the time for London, New York, and Tokyo trading sessions and match your trading to this schedule.
Margin in Forex Trading: Definition and Role
Margin is a sum that you need to deposit into your account to start your forex trading with leverage. This deposit is calculated in percentage and it allows traders to trade with leverage. It can be described as a kind of collateral, against which leverage is calculated and provided.
Like, if you need to put up a 1% margin, it means that whatever sum you mark as margin, from 500 USD to 50,000 USD, it will be 1% of the leverage you can borrow. Multiply your 500 USD margin by 100% and you get 50,000 USD you can trade with if you use leverage.
In other terms, if you see in terms and conditions the leverage ratio of 100:1 or 400:1, it means that against every currency unit you upload as a margin you can get 100 or 400 units of leverage. Looks great, right?
Margin Call in Forex: What It Is And How To Avert The Problem
However, with such great prospects, there comes a caveat. When a trader buys on margin, the funds on the account are mixed, both loaned and owned. To keep an account alive and trades running, a certain amount of margin should be available in the account no matter what, and this margin should be the trader’s funds, not borrowed ones. It is called maintenance margin. The level of this margin is set by regulative bodies or by trading platforms, depending on the type of traded assets.
So when the trade goes south and the total value of the equities in an account falls, the losses are deducted from the trader’s portion of the money, i.e. from the margin.
Hence, when the value of purchased assets (in our case, currency pairs) falls below the required level of margin in a trader’s account, a trader receives a margin call. A margin call is a warning that this situation is happening, and solutions are either to add the trader’s money to the account to return the proper balance of maintenance margin, or to sell some stock to replenish the balance. The drastic measure will be to close the position altogether.
For example, a trader has 50,000 USD, borrows another 50,000 USD as leverage, and invests in some currency pair with the total cost of 100,000 USD. Let’s assume the maintenance margin requirement is 25%. As a result of some unlucky sequence of events, the value of the currency falls and incurs losses, thus bringing the equity in the account down to 60,000 USD. The losses are deducted from the trader’s money, as we remember, so a trader is left with 10,000 USD as margin (100,000 USD – borrowed 50,000 USD – losses of 40,000 USD).
How to calculate the percentage of the margin left: (market value of assets – borrowed funds) / market value of assets.
Namely, (60,000 USD - 50,000 USD) / 60,000 USD = approx. 16.67%.
It means that the remaining margin in an account is below the required level of 25% and a margin call ensues.
- set stop-loss orders;
- use a modest amount of leverage;
- calculate what losses are manageable and plan what orders you place;
- diversify your portfolio and trade in currencies with different volatilities to offset possible losses.
Forex Orders: Types and Key Differences
Since we mentioned a stop-loss order, it’s time to discuss the key type of forex orders to remember.
- Market order: an order everyone usually imagines where haring about forex trade. It’s an order without any conditions or limitations, executed immediately at the best price available on the market (or at the price next to it). A trader requests to buy a lot and buys it right away.
- Limit order: this order will be executed with a delay that depends on the limits a trader sets. There are buy limit and sell limit orders. For the buy limit, the order will be fulfilled when the price is the same or below the specified value. For the sale limit, the order will be fulfilled when the price is the same or above the specified value. For an order to be triggered into execution, the price should either fall below the current level (for buy limit) or grow above it (for sell limit). The significance of this type of order is that if a trader believes the price will head in some direction, it is possible to buy or sell assets at more beneficial prices in advance and then enjoy the ride as the prediction about the price fulfills. E.g., if a price will go up, it’s reasonable to buy when and if it falls slightly before the ride upward, and thus gain an additional advantage in earning.
- Stop entry order: this order is used to run operations in potentially unfavorable conditions. A trader cannot predict accurately the movement of the price but has some speculations. In order not to miss an opportunity, a buy stop order is set for the price above the current market values. It means that if the price starts to grow and hits the value, the forex asset will be purchased and a trader will not lose a chance to buy it relatively cheaper. The same relates to selling stop orders. It is set for a price that is below the current market value. So if the price of the assets starts to fall, the position is liquidated and the loss is minimal.
- Stop-loss order: the key order to remember for a successful forex trade career. It helps prevent losses when the market is unpredictable or a trader places a potentially risky order. A stop-loss order is attached to a market order and executed when the prices work against a trader. For long positions (buy), a sell stop order is to be utilized, and for short positions (sell), a buy stop, correspondingly. Once the price reaches an unfavorable level, the stop-loss order immediately closes the position. So losses are usually minimal.
- Trailing stop order: this kind of stop-loss is meant to be executed when the desired or higher level of profit is reached, i.e. it trails behind the unfavorable price movement and does not let profits turn into losses. E.g., for a short order, a stop loss will be above the current price. But if the price goes down as expected, the trail stop level will follow it, moving in steps specified by a trader. Like, if one sells USD/JPY at 80.80, the stop loss will be set at, say, 90.00. But if the price goes down to 80.60, the trailing stop will follow it and move to 80.80 and stay there. It won’t move back to a higher value, so if the actual prices of the asset grow back, the order is executed and profit is made.
How to Implement Stop-Loss Orders In Forex Trading For Maximum Success
Stop-loss order is specifically designed to help traders minimize losses, and before starting a trade, it’s necessary to calculate potential profits and losses to set the proper values. The basic rules are as follows:
- It’s necessary to decide in advance what price level will mean that the trade goes south without losing too much. It is the stop-loss order value.
- It’s necessary to decide what price level means profit and set a limit (take profit) order there.
- Between these two levels, it’s now possible to define the entry-level according to trading books. The books say that if the chance of getting profit relates to the chance of losing as 2:1, it’s worth risking.
- When the entry-level is defined, it’s possible to calculate potential losses. The difference between the entry and stop-loss price levels is what a trader can lose in pips.
- A reasonable order is the one that puts at risk about 2% of the account value.
When all factors are accounted for, it’s time to start trading and set market orders in conjunction with a stop-loss order to minimize risk and maximize the gains.
Slippage in Forex: Meaning, Explanation, Example
Slippage is a term for the unintended difference between the expected price of completing a trade operation and the actual price it was completed at. In this case, we talk not about the expected decrease or increase of prices that helps traders to make money (or lose them), but about these milliseconds that separate a trader’s request to fulfill the order and the automatic completion performed by the platform. Yes, slippage is neither negative nor positive itself. It’s an instant change of spread size, and it can as much contribute to the benefit of a trader as it can to the loss.
Slippage becomes obvious when the volatility is high, especially in the forex market, and milliseconds of delay can translate into significant bonuses or losses.
Let’s consider an example: a trader plans to buy EUR/USD at the current price of 1.3660. While the order is submitted and fulfilled, the price changes to 1.3655. The order is then completed at the new price, saving a trader some money. That’s positive slippage.
If a trader plans to buy EUR/USD at the current price of 1.3660, and the price changes to 1.3665 while the order is being fulfilled, a trader spends more money than expected, or the order is not executed at all (if an account does not have enough funds).
Even stop-loss orders cannot guarantee the absence of slippage. The ‘guaranteed stop loss orders’ can do it, however, but a broker will charge a premium for taking and fulfilling this kind of order.
Manage Risk and Emotions
If you learn Forex trading for beginners, you need to learn risk management. It involves calculating losses that you are ready to face to make a profit. While learning risk management, you find out how to protect your deposits from losses and control your emotions.
If you want to learn how to trade Forex, you need to know this information. The main rule of trading is to start with small trades. While taking a hot bath, anybody doesn't jump in a straight way. Initially, you test the water temperature. Trading doesn't differ from taking a hot bath. You don't need to enter the market with your entire position. Initially, you need to test the market with a smaller trade before taking your full position.
There are two types of Forex brokers, including regular brokers and broker-resellers. Regular brokers interact with their clients while broker-resellers act as intermediaries between customers and a more prominent broker.
A broker is a mediator between an investor and a securities exchange, a place where financial assets are traded. Therefore, you need a broker to trade for you. For their services, brokers charge fees.
Before starting to choose a broker, you need to answer a few questions, for instance, whether you are looking for a long-term retirement fund or a short-term retirement, what strategy you want to use, etc.
To choose a broker, pay your attention to the following characteristics:
- A level of reliability;
- Account minimum;
- Pricing and execution;
- Tools, education, and features;
If you want to learn how to trade Forex successfully, you need to learn about the Forex market. Visit webinars, online lectures, courses, read professional articles and other materials as much as you can. Secondly, you need to choose a broker offering profitable conditions, effective trading tools, and extensive guidelines. After that, you need to choose a strategy among different strategies, including day, position, scalping, and swing trading. Then you need to choose a type of account among different ones, including a Demo account, Standard account, Pro account, and Raw Spread account.
Starting trading on Forex, you need to get valuable trading experience on the Demo account without losses. In addition, if you want to learn FX trading, you need to learn risk management and control your emotions. This is an extensive guide on how to trade Forex for beginners.