Do you want to become proficient at trading foreign currency pairs, or forex pairs for short? This form of trading has become very popular over the past decade, especially after the Covid 19 pandemic caused many people to stay at home and try to earn more income from the comfort of their home office. However, forex trading is high-risk, complicated, and not for everyone. You need to be aware that after the first six months, many newcomers to forex trading fall by the wayside, frustrated at losing their account’s balance. We are here to ensure you do not become an early casualty in this activity.
Getting started can be a daunting task, but there is a defined process that can lead to successful forex trading. Read on to discover what forex trading is and how to trade forex online as a beginner. We will discuss forex trading strategies, a few pros and cons, and how to choose your business partner, your forex broker, who will provide safe access to the forex market. Lastly, we will provide a list of forex brokers that are known to be beginner-friendly.
What is Forex Trading?
According to the Bank for International Settlements (BIS), nearly $6.6 trillion in foreign exchange instruments are traded daily in the world’s largest market. Retail forex trading may make up a small portion of this figure, but you get the picture – this market is enormous.
The market supports international trade and the corporate treasury staff that must hedge their risk due to changing foreign exchange rates. The vast majority of the volume, however, comes from speculation since swings in valuations create opportunities for gain and also for loss. Forex trading involves currency pairs, the largest market sector being the Euro versus the US Dollar.
Many factors can impact foreign exchange rates, like interest rates, geopolitical risk, economic strength or weakness, or trade flows, to name a few. There are also varying opinions on how these factors can shape the future direction of valuations, thereby creating volatility in the market. Where there is volatility, there is an opportunity for traders to profit.
How to Get Started in Online Forex Trading
Why are casualty rates so high in forex trading for beginners? Would the military send you into battle without the proper training and preparation? Forex trading is akin to war in a way. You will fight in the world’s largest and most fluid market, and to survive, you need the best weapons and training, but you also need to invest the time upfront to improve your odds. There is no shortcut for experience. Impatience and inexperience can lead to your downfall.
We are here to help you be successful, and, put simply, you would be wise to follow the “3 P’s” – Preparation, Planning, and Practice:
- Preparation: Like any activity, forex trading has its own vernacular and tools of the trade. Awareness will be vital in building a good foundation for future trading. We have several articles and links to help you learn the basics of forex trading. Take advantage of these and broaden your knowledge base of everything related to this art form. Accept your amateur status, and let experts be your guide.
- Planning: You must approach the forex market with a disciplined plan of attack. There is a psychology related to trading in any financial market, but the forex market is capable of whipsaw reactions at a moment’s notice. It is easy for your mind to get caught up in the chaos and let your emotions affect your decision-making process. A step-by-step routine is a proven way to avoid this major pitfall by keeping your emotions at bay. We can help you develop this plan, manage your risk, and keep your emotions out of it.
- Practice: Many forex brokers provide free demo trading systems, even before you open an account. You may gain experience on how the market operates and how to make money at this activity by trading virtual money on this practice platform. Fine-tune your plan of attack. Learn how to open and close a position, place a stop-loss order, and how to use charts and indicators. Veteran traders attribute their success to hours of practice.
Your goal at this stage is to develop familiarity and confidence in how you approach this very fickle market before you ever put real money on the line. As a beginner, it is also best to focus on a single heavily traded pair like the “EUR/USD”. In real-time, start slow and with a small deposit of $500, and then gradually work your way up to your personal comfort level.
Best Forex Trading Strategies?
There are many ways to trade forex pairs, but you will want to choose a method that aligns with your personality. Traditional forex trading strategies encompass going long or short on a specific currency pair based on fundamental information about the market or technical indicators, levels of support and resistance, and various repeating patterns of price behaviour. We can help educate on all of these aspects of the trade.
However, currency trading can be approached from many different perspectives. You can be a position trader for the long term, a swing trader for a shorter term, and even engage in scalping or day trading. You may also trade by taking positions in specific pairs, dealing in options, or trading with Contracts-for-Difference (CFDs), where you never own the asset but can speculate on price directions. CFDs are part of the basics of forex trading for beginners.
If your nerves are not made for direct forex trading, other methods are still available for you. You can always select a money manager who focuses on forex pairs or buy into a fund that does the same thing. Lastly, you may also choose to do what is called mirror or copy trading, where your portfolio automatically follows the trades of chosen experts, subject to your adjustment at any point in time. Some brokers have explicitly focused on this type of trading genre.
The Pros and Cons of Trading Forex
Trading currency pairs is unlike trading stocks, where a management team can make grave errors and drive the share value down to zero. Currency pairs fluctuate over time based on how the economies of each supporting nation or group of nations perform. Returns may be small, but free leverage can magnify these gains or losses, whereas margin trading with stocks is often limited and costly. Forex trading does have other Pros and Cons:
- Easily accessible market “24X5” at low cost and small investment
- Highly liquid market with quick and easy buying and selling of positions
- Easy to go long or short on your chosen currency pair
- Potential exists for quick returns when volatility is moderate
- Price manipulation is very scarce in major trading pairs
- High volatility translates to high risk
- Retail traders compete against major institutions
- Knowledge of global events can be required
- A portion of the broker community is unregulated and prone to fraud
How to Choose a Safe Forex Broker
A sad truth in our society is that wherever there is a financial website and an unsuspecting public, there will be the potential for scams. Forex fraudsters are very organized, and great care should be taken when choosing a forex broker from the dozens, if not hundreds, of available brokers across the globe. We can help you find a safe one, but the final decision will be yours.
There are several criteria to review when making this decision:
- Regulatory Compliance: The first safety rule is choosing a broker that complies with stiff regulatory rules and regulations. Avoid brokers in far-off locales with no regulation. Pressing your legal rights in a foreign jurisdiction is near impossible.
- Features: Questions here are – Is it easy to make deposits and withdrawals? Is leverage available? Are spreads competitive? Is copy trading offered?
- Portfolio Offerings: Are the currency pairs I want offered? Can I trade stocks and indices? What about cryptocurrencies?
- Customer Service: Are they responsive? Do they have live chat? Do they speak my language? What are their hours?
- Trading Platform: Most brokers offer free access to a demo system. Give it a trial spin to see how you like it.
The Best Forex Brokers for Beginners
Some brokers are more user-friendly than others when supporting beginners. Here is a list of the better ones:
|#1||Your capital is at risk US Clients: No Regulated : Yes||
– 40% New Member Bonus
|#2||Your capital is at risk US Clients: No Regulated : Yes||
– Flexible leverage up to 500:1
|#3||75 % of retail CFD accounts lose money US Clients: No Regulated : Yes||
– Ultra – fast execution from 0.1s
|$100||from 0.0 pips|
|#4||Your capital is at risk US Clients: No Regulated : Yes||
||10€ / $ / £ (depends on account type and region)||1.2 pips|
|#5||77 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. US Clients: No Regulated : Yes||
– FCA, ASIC, CySEC Regulated.
Learning forex basics is the first step to becoming a successful forex trader and not an early casualty. Forex trading is high-risk. Invest the time upfront in preparation, planning, and practice, and you will gain the confidence you need to win in this market.
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