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Beginners Guide to Forex

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Table of Contents

  • Beginner’s Guide To Forex
  • Get the Right Forex Education
  • Understand The Risk in Forex Trading
  • Adopt a trading Style
  • Practice on a demo Account and keep a Trading Journal
  • Always Wisely Choose Your Forex Broker
  • Useful Tips for New Traders

Beginner’s Guide To Forex Trading

Forex or Foreign Exchange is the world’s largest decentralized market for exchanging currencies. Currency exchange is the process of exchanging one currency against the other. For instance, right at the current rate, you need 1.1510 US dollars to buy one Euro.

The Forex market is at the heart of global trade and business. Countries & businesses looking to trade overseas use the Forex market to exchange currencies. Likewise, banks, institutional investors, and retail traders use the Forex market to trade and manage their investment by speculating on the currency prices.

The Forex market participants make it one of the largest in the world. It has a daily turnover of nearly 6 trillion dollars compared to just 500 million in 1973. The popularity of the Forex market among retail traders rose to new levels towards the end of the last century. The internet revolution made it possible to trade 24 hours a day 5 days a week from anywhere using online trading platforms.

Today, more and more individuals are attracted to Forex trading. It’s mainly due to its ease of access and high liquidity. However, starting Forex trading may sound easier but trading successfully in the Forex market is a challenging task especially for the newcomers.

It is a fact that the majority of the new traders end up losing their hard-earned money. There are several reasons for that. In this beginners guide, you will learn the right way to start Forex trading and the things that you should and shouldn’t do as a beginner in Forex trading.

Get the Right Forex Education

If you are new to Forex trading, education is the most important aspect that can make or break your trading career. You can find countless Forex educational resources on the internet. However, Make sure to avoid the advertisements that entice you by telling the amount of money you can make overnight from trading. This would generally be a selling pitch and you will end up losing valuable time and money.

You should start by learning the basics of Forex trading, such as how the Forex market works and what causes the exchange rates to fluctuate. Once you understand the basics, you can start learning some advanced concepts. This may include learning the technical and fundamental analysis.

Technical analysis is a method to analyze and predict market movement using mathematical tools and indicators. There are several technical indicators, some are easy to use and some require time and skill to master. The majority of the new traders ignore the fundamental side of the market. As matter of fact, the fundamental analysis holds equal importance. You must at least know about the scheduled economic releases that can affect the currency market. Some of the economic indicators include GDP numbers, employment data, inflation rate, and so on.

 

Understand the Risk in Forex Trading

As a new trader, if you operate without understanding the risk you can lose a substantial amount of money. Fortunately, you can avoid this by learning to use various risk management tools and different trading strategies. You should learn to effectively use the stop-loss, understand the risk to reward ratio, and calculate the risk of ruin which is a point of no return.

A trading strategy is a plan that plays a crucial role in trading. As a beginner, you should build a strategy that involves minimal risk. Of course, with low risk, you will make small profits. But this is the right way to start for a new Forex Trader. You can increase your risk level after gaining some experience. This will give you the confidence to operate in rough market conditions and achieve your financial goals.

Adopt a Trading Style

The trading style is the key component of a strategy and for that, you should know the amount of time you can spend on trading. For instance, if you have a day job, perhaps day trading will not be ideal for you. In such a case, you can adopt swing trading because this style of trading does not require you to trade every day. However, if you have time, you can even adopt the scalping style. It is a style of short-term trading, typically on a 15 minutes time frame, and requires you to be present on the screen.

Practice on a Demo Account and Keep a Trading Journal

So far in this beginner’s guide, we have talked about managing the risk, building a trading strategy, and adopting a trading style. As a new trader, you will require to continuously test and monitor everything. A demo trading account is a handy option for that. For example, if you built a trading strategy and want to test it, you can test it using a demo account. This way you can analyze the strategies and fix the flaws without risking the actual capital.

Likewise, you should also keep a trading journal. A trading journal will have records of all your trades. Using the journal,  you can track your trade and revisit your performance in case if something had gone wrong.

Always Wisely Choose Your Forex Broker

A Forex broker works as a middle man that executes the trades in the market on your behalf. As a new trader, you need to know your trading cost. Some brokers charge a flat commission while others make money from the spread. Spread is Gap between the bid and ask price and having a higher spread increases your trading cost. Similarly, paying a high commission will also increase your trading cost. That is why you should always avoid Forex brokers with higher spread and commission.

You need to make sure that the broker’s trading platform is easy to operate and has all the technical tools and indicators to assist you in trading. You should also prefer trading with a regulated broker that follows the regulatory guidelines. Lastly, the withdrawal and deposit process should be quick and smooth.

Useful Tips For the New Traders

 

  • Plan your stop-loss even before you enter a trade & never trade without a stop-loss
  • Start Trading with small lots & gradually increase the quantity based on your success rate
  • If you are continuously losing, stop trading for a while and revisit your trading plan
  • Do not trade with emotions especially avoid revenge trading
  • Stick to your trading plan and try not to lose more than your average winning day
  • Accept responsibility, embrace the process and never stop learning

 

This brings us to the end of this guide. Hopefully, this guide will be useful for you in starting your Forex trading career and you will stay on the right side of the market in the coming days

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