If you want to see how to trade in Forex, we’ve laid out all the steps you need to do it safely while managing the level of risk.
We’ll be taking you through the step-by-step process of Forex trading for beginners that gets you started simply, but without skipping any of the key points.
Find out how this market works and what the key terms mean. Once you learn the Forex trading basics, discover how you can get involved and make your first trades.
Introduction to Forex Trading for Beginners
Before explaining how to trade in Forex, let’s look at what this market covers. Forex trading appeals to beginners because it is easy to get started. Our introductory guide to Forex lets you get to grips with the basics.
This is a global market that is decentralised across the planet. With no physical locations like stock exchanges to make transactions, traders can operate online and make Forex trades 24 hours a day, five days a week. Anyone who wants to learn Forex trading can take part conveniently in the way that suits them, using the right platform and knowledge to get started.
How to Trade Forex for Beginners: Step-by-Step Breakdown
To learn Forex trading, you need to follow some simple steps that take you through the process from start to finish.
Choosing a Regulated Broker
By trading Forex with a regulated broker like ActivTrades, you trade with added security and transparency. Don’t make the mistake of using unregulated platforms where your funds aren’t protected and there is no dispute resolution process.
Opening a Demo Account
Once you learn Forex trading, you’ll be keen to put that knowledge to good use. However, before trading with real cash, you should open a demo account that lets you practise with dummy funds.
You can make your first moves without worrying about making mistakes in your early attempts.
Using a Trading Platform
The best trading platforms include the likes of ActivTrader, TradingView, Metatrader 4, and Metatrader 5. These platforms offer tools and charts that allow you to analyse the current market and start trading.
When you learn how to trade on Forex, you might like to try each platform to see which one is best for your needs.
Analysing Pairs
The Forex market is based on buying and selling currency pairs, such as GBP/USD. The base currency is shown first, followed by the quote currency. For instance, the GBP/USD pair at a rate of 1.26 would mean that £1 is currently worth $1.26.
Not all currency pairs are regarded in the same way. These pairs are split into the following categories to make them easier to understand:
- Major pairs are those that include the most popular combinations, with the US Dollar included in all of them. Pairs such as GBP/USD, EUR/USD, and USD/CAD are popular among traders because of the high level of liquidity and tight spreads in this market. It’s also easier to find online analysis and news stories to base your Forex trading decisions on.
- Minor pairs are based on other leading currencies, but they don’t include the USD. This gives combinations such as EUR/GBP, EUR/CHF, and AUD/JPY.
- Exotic pairs cover one major currency and another that is from a smaller economy or an emerging nation. Examples include USD/TRY, GBP/SGD, and EUR/ZAR. These pairs typically have less liquidity than major or minor pairs. Their prices may also be more volatile. Exotic currency pairs aren’t generally recommended for beginners.
Technical analysis and fundamental analysis should be carried out on any type of currency pair to help understand whether the base currency is expected to strengthen or weaken against the quote currency.
Placing a Trade
Once you’ve decided which currency pair to try, you need to place a Forex trade on your chosen platform. This means choosing the pair you want to trade and buy or sell.
- Buy means going long, which is the approach to take if you believe that the base currency is likely to strengthen against the quote currency.
- Sell if you want to go short. This option is suitable if you think that the base currency is more likely to weaken when compared to the quote currency.
You’ll then be asked to enter the volume or lot size. Don’t forget the importance of stop-loss and take-profit orders when you learn how to trade in Forex.
These tools automatically close the trade if it reaches a certain level. Otherwise, you can manually close the trade at any time once it’s open.
Tackling Performance
Once you’ve learned the basics and placed some trades on your demo account, it’s time to look at the performance you’ve obtained. This will allow you to better understand the risk management steps to take and help you make better trades in the future.
Understanding the Forex Market Structure and Forex Trading Hours
To start to trade Forex, there are certain aspects of the market structure and trading details to understand.
The currency pairs we looked at earlier provide the starting point. Each pair has a spread, which tells the difference between the bid (sell) price and the ask (buy) price.
This is the cost of carrying out a transaction, and the narrower this spread, the less it will cost to trade.
Leverage can be used to increase the trader's position in the market, using funds borrowed from the broker to magnify their trading power. Using a 100:1 leverage ratio would mean that the trader could operate with £100 for every £1 they've added of their own capital.
While there is no centralised exchange for trading Forex, the day is split into four main sessions. These are known as the Sydney session (10:00 PM - 7:00 AM GMT), the Tokyo session (12:00 AM - 9:00 AM GMT), the London session (8:00 AM - 5:00 PM GMT), and the New York session (1:00 PM - 10:00 PM GMT).
While you can trade any currency pair at any time, the session that’s currently active helps to determine the most actively traded pairs and the liquidity levels at any given time.
Forex Trading Strategies: Technical vs Fundamental Analysis
Technical and fundamental analysis are the two ways of looking at the market and deciding what Forex trades to make.
Technical analysis looks at historical charts to try to predict what happens next.
It’s typically used by people who want to carry out short-term strategies like day trading and scalping, using the patterns on the charts to calculate when to enter and exit positions. These traders look for signals that tell them when to make a move.
Fundamental analysis is used by traders with longer-term goals. They look at the underlying economic indicators and trends to see how much each currency should be worth when compared to another.
With fundamental analysis, the latest financial news and economic data are used to work out the upcoming market conditions and what trades to enter.
Risk Management and Tips for Successful Forex Trading
The role of risk management is crucial when carrying out Forex trading. There are various methods of controlling the risk of your trades.
- Stop-loss orders are used to automatically close any position that goes against you. You set the level before each Forex trade to limit the amount of any potential loss.
- Take-profit orders automatically close the trade when the profit reaches a certain level, ensuring that you lock in profit. It allows you to take emotion out of the trading, as you may be tempted to aim for more profits otherwise.
- Position sizing is an approach that lets you decide how much to put into each Forex trade. Many traders use the 1% rule, meaning that only 1% of their funds is risked on each trade.
- The risk-to-reward ratio is calculated by looking at the amount of possible profit divided by the potential loss. This should always be a positive figure, with 1:2 and 1:3 among the most popular targets.
- Emotional control is essential when using Forex trading strategies. The tools and approaches that we’ve looked at help to reduce the risk of making emotional decisions in the heat of the moment.
FAQs – How to Trade Forex for Beginners
What Currency Pairs are Ideal for Use in Forex Trading for Beginners?
While there is no exact answer to this question, many new traders use one of the major pairs featuring the US Dollar and another of the most widely traded currencies. This type of pair has greater liquidity and generally suffers lower volatility than minor or exotic pairs.
How Can I Lower the Risk When Learning How to Trade on Forex?
Carrying out technical and fundamental analysis lets you understand the direction in which the market is expected to move. Choosing the right size of position and using tools such as stop-loss allow you to trade with less risk.
How Volatile is Currency Trading?
Forex is a highly volatile market, although the exact level depends on the currency pairs you choose to trade. When you learn how to trade Forex, it’s a good idea to use a demo account and see how different currency pairs fit your personality and trading style.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk. Forecasts are not guarantees. Rates may change. Political risk is unpredictable. Central bank actions may vary. Platforms’ tools do not guarantee success.