Forex trading offers a flexible and accessible route to profiting from the global financial markets. Within this guide, we’ll explore all you need to know about trading the forex markets as a first-timer. From basic concepts to effective strategies, we’ll equip you with the tools and knowledge to start trading forex confidently and responsibly.
What is Forex Trading?
Forex trading, also known as foreign exchange trading, is the buying and selling of fiat currencies in pairs. Major, minor and exotic fiat currencies are paired against one another, with the value of one currency traded against another, such as EUR/USD, known in the industry as the ‘Euro-Dollar’.
The forex market is the world’s largest financial market, operating 24/7, allowing traders to speculate on the value of one currency against another.
The first currency listed in a forex pair is known as the ‘base currency’. The second currency listed is known as the ‘quote currency’. Using EUR/USD as the example again, if EUR/USD trades at 1.05, this means 1€ is equal to $1.05.
It’s the job of forex traders to profit from price changes by buying a currency they expect to strengthen or sell one they expect to weaken.
Some of the most important concepts to get your heads around in forex trading include spreads and leverage. The spread is the gap between the buy (ask) and sell (bid) price. The bigger the spread, the more a trade has to move in your favor to become profitable. That’s why tight spreads are most favored among forex traders. As for leverage, this gives you the opportunity to control higher-value positions with only a fraction of upfront capital by borrowing the remainder from your forex broker.
Let’s say that you anticipate the Euro weakening against the U.S. dollar in the coming weeks. You decide to sell EUR/USD at 1.08. It then falls to 1.04. You can then close your position by buying EUR/USD at the lower price and your profit is the difference between your opening and closing trades.
How to Start Forex Trading for Beginners
It’s easier than you might think to learn how to forex trade for beginners. However, you must approach the forex market in a methodical fashion. Start by mastering the basics of how the forex market operates. Get to grips with all the moving parts of the market. Familiarise yourself with the most used terminology such as ‘pips’, ‘spreads’, ‘leverage’, and ‘currency pairs’. You’ll then be ready to proceed with the following:
- Practice trading forex using a demo account
- One of the great things about learning how to forex trade for beginners is the availability of demo accounts. Most forex brokers will let you open a demo account to trade forex pairs using virtual money, entirely risk-free. This is invaluable for testing strategies and getting to grips with trading software.
- Start small with a real-money account once you have road-tested your strategies
- As soon as you’re ready to open a real-money account, be sure to start small. It’s easy to open a real-money account with ActivTrades – and their beginner-friendly risk management tools, trading platforms and educational resources are the perfect base for new traders to start.
- Maintain your trading discipline
- As soon as you start forex trading for real returns, discipline is key. Avoid emotional decision-making. Stick to your trading plan and refine your strategies as you gain knowledge and confidence in the market. Forex trading is a skill that takes time to hone but, with the patience and the right resources, first-time traders can steadily grow in belief and profits.
Forex Trading Strategies for Beginners
As a forex trading novice, it can be hard to know where to begin with building an effective trading plan. Below, we’ll discuss three foundational forex trading strategies for beginners which can get you started:
- Trend-Following
- The basis of this forex trading strategy involves trading the current direction of the market trend. If a forex pair shows persistent upward momentum, you would look to ride this wave and buy the pair while demand continues to outweigh supply. If it shows consistent downward momentum, you would sell the pair while supply outweighs demand.
- Support and Resistance Levels
- These price levels are the most important elements of technical analysis. Support levels occur when a currency trends to stop falling and bounce back up in value. Meanwhile, resistance levels occur when a currency’s price stops rising and experiences a pull back correction. In an ideal world, you’ll see these price levels occur on more than one occasion to confirm genuine support and resistance in the market.
- Risk Management
- Remember, no forex trading strategy is robust enough without risk management. Incorporate stop-loss orders to put a ceiling on potential losses and ensure your position size equates to only 1%-2% of your overall trading bank. This is invaluable to protecting your trading capital during inevitable losing streaks.
The best way to build your forex trading strategies is to test them using a demo account first. Treat your virtual money balance as if it was real money and make sure your strategies have the right risk-reward balance and a sufficient strike rate to grow your trading capital. Open a demo account with ActivTrades today to get started.
Why Choose ActivTrades
There are many reasons why ActivTrades is the best forex broker for beginners. First and foremost, it’s well-regulated around the world, including the UK, Italy, Brazil, Bulgaria and Mauritius. It’s also hugely respected in the forex trading industry, having landed multiple awards for its services in recent years.
With around two decades of expertise serving forex traders worldwide, ActivTrades knows exactly what it takes to create a trading environment and infrastructure which allows retail forex traders to thrive.
This includes support for state-of-the-art forex trading platforms such as MetaTrader 4 and MetaTrader 5. There’s also ActivTrader, a proprietary forex trading solution that’s packed with powerful tools for new and experienced traders. In total, you’ll have access to over 1,000 CFDs across seven core asset classes, including forex.
Using ActivTrades Forex Trading App for Beginners
If you like the idea of trading forex on the go, ActivTrades’ mobile trading app also offers an intuitive experience on iOS and Android devices. Get to grips with it on desktop first and you’ll soon discover why the mobile version is a leading forex trading app for beginners, with fast execution, real-time market updates and a suite of trading tools that put the power in your hands.
Forex Learning Resources
Learning forex trading for beginners can be a real challenge, especially if you’re completely new to the financial markets. The truth is, you never stop learning about the forex world, even as you gain experience. It’s important to adopt a self-improvement mentality. Don’t ever believe that you’ve cracked the markets, even after a string of winning trades.
At ActivTrades, we regularly update our library of educational resources, including live webinars, in-person trading seminars, as well as how-to manuals on our supported trading platforms. All of which can help you get the most out of your forex trading. We also offer regular news updates, as well as market and macro analysis to put you firmly in the picture.
Forex for Beginners FAQs
Can anyone trade forex?
Yes, absolutely! There are no qualifications needed to become a forex trader. All you need is a reliable internet connection and a reputable broker and you can trade forex anywhere in the world. Be sure to pick a forex broker that’s reputable and well-regulated in your jurisdiction.
Is technical analysis more important than fundamental analysis in forex trading?
The reality is that both types of forex trading analysis are as important as each other. Technical analysis can pinpoint areas of support and resistance, along with price patterns and trends. Meanwhile, fundamental analysis can offer macroeconomic data or insights which can influence the broader sentiment of the forex markets.
What is the best time of the day to trade forex?
The beauty of forex trading is that there’s no perfect time to trade forex pairs. The forex market operates almost 24/7, so there are trading opportunities in all four corners of the globe throughout the day and night.
How does leverage work in forex trading?
Leverage is an opportunity to borrow funds from your forex broker and invest in a forex pair using only a fraction of your own capital upfront. For instance, if you’re offered 1:10 leverage, you’d only need to deposit 10% of the value of your total position. With bigger positions comes greater profit and loss potential, increasing the importance of risk management techniques like stop-loss orders.
How many types of forex markets are there to trade?
There are three types of forex markets which you can trade – spot markets, forwards markets and futures markets. Spot markets are bought and sold based on their current market price. Forward forex contracts give you an agreement to purchase a currency at a future date and a predetermined price. Meanwhile, futures forex contracts are similar to forwards, except they are traded over exchanges rather than over-the-counter (OTC).
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