How to trade Forex – A step-by-step guide from start to finish
What is forex trading?
Placing a trade in the forex market is simple. The methodology of how to trade forex is similar to those found in other financial markets, so if you have any previous experience trading, you should be able to pick it up fast. The major objective of forex trading is to exchange one currency for another in the expectation that the price will change.
How does forex work?
At the start of their trading careers, many traders have trouble getting their heads around how to trade forex. Some even ask if trading will work for them at all. This points to the fact that you have to understand the basics of forex trading. You also have to address your findings in the right way.
Insufficient knowledge, lack of effort, unrealistic goals, false motives, greed, and inappropriate haste are some of the reasons why people end up abandoning their trade careers. Before you decide anything, think about the global impact of the forex market. Think about how much you can profit from it if you do things the right way.
You should take the time to ask yourself the following questions:
- Where do I get the basic principles of price formation for every asset in the world?
- Do I need to understand the structure of the trading industry?
- What is the nature of international economic interactions?
- When is the right time to trade?
- Can I understand the principle behind technical and fundamental market analysis?
- How can I get to know the functional intricacies of being a trader?
Other factors you need to consider:
- Supply and demand
- A mental map of the forex industry
- Key analysis
What is next?
Trading the financial market is something that is open to everyone. It has never been as accessible as it is now. All you need is the internet, a laptop, and some funds. With these, you could be trading millions of dollars in the forex market on a daily basis. However, with more than 3000 tradable markets to choose from, the task of starting up as a new trader can be overwhelming. This is why it is important that before you start to invest, you take the time to learn the trade. Through step-by-step training, you have a better chance of learning how to trade forex. You will be in a better position than investors who did not take the time to learn from the beginning.
Where are we going with this?
In this article, we are going to be providing you with a step-by-step guide on trading forex. This guide will give you a better chance of trading with purpose, confidence, and success. For whatever reason you are trading forex, either out of curiosity, as a second source of income, or as a full-time job, I can assure you that you are in the right place.
In this article, we are going to be covering the following:
- How to trade with platforms, tools, and products in the forex financial industry.
- How to trade the forex market so you can decide on the best strategy for you.
- Where you can learn the techniques of some of the best traders in the world.
- The 4-step trading plan that can allow you to take action immediately.
- Where you can find the best trading tools so you can access and learn from the professional traders.
Let us begin!
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How to trade
Before you start learning how to trade the financial market, it is important to have the right set-up from the beginning. After all, there is no reason for you to go through a number of courses on how to trade, only to find out that you do not have the right trading tools and products to execute your trading strategies and ideas.
Here are some of the trading tools you need to start your trading journey:
A good broker
If you want to buy any investment, such as the dollar, shares, or stocks, you need to find someone who owns what you want to buy and is willing to sell to you. This is basically what the broker does for you. By making use of their platform, they connect you to their buyers and sellers in the stock, futures, or currency markets, where you can trade.
This platform allows you to trade with others even though you might never get to meet the person on the other side of the trade. The market is fast and makes use of top innovative technology where you can buy and sell by making use of the market order placed with your broker of choice. Something to consider with a broker is security and regulations, because this is where you deposit your capital to trade with. We will discuss this more in the next section.
Factors to consider when selecting a broker
When discussing how to trade forex, the initial part of this article has highlighted the importance of trading forex. Now, on the one hand, we know the importance of selecting a good broker when trading forex, but on the other, there are some factors to consider when selecting a broker; some of which are as follows:
Spread and trading conditions
Once you have some brokers in mind, the next things you need to consider are the trading conditions and the spreads. When it comes to the trading conditions, you should focus on commissions and spreads from the broker as well as the overnight swaps that are charged. Many traders today ignore these factors, and it is something that must be taken seriously.
Banking – withdrawals and deposits
Once you have clarified the issue with trading conditions and spreads, the next thing to consider is the banking conditions. One thing we understand is that many brokers have different fees, so one step that must be taken is to take a look at the broker with your most preferred method of withdrawal and deposit and the one with the best fees charged. Many brokers waive fees for new customers, but this is just a way to keep you from looking up other brokers – a simple trap mechanism.
Regulations are very important; in fact, they are one of the most important factors to consider when learning how to trade forex and, most importantly, when selecting a broker. This factor helps you trade a broker who is regulated in the country where you reside. There are some regulatory bodies that are recognised globally, such as The Financial Conduct Authority (FCA) in the UK and the Cyprus Securities Exchange Commission (CySEC) in Cyprus.
Trading with a regulated broker offers you some assurance that the broker will not vanish and take your funds along with them. Most regulated brokers offer banking services with segregated accounts. This helps to keep the trader’s funds separate from the operating capital, and can allow you to recover your funds if the broker goes out of commission.
With all the other factors in place, maintaining your trading progress is important, which is where a good support system comes in. No matter how good things are when you are trading, no matter how great the spreads are, without a good support system, profitable trading can sometimes be impossible. Most times, traders consider everything but support until they get to a position where they are stuck and are in need of serious help. As a trader (whether a beginner or seasoned), you need to make sure that when you open an account with a broker, you have an account manager who you can reach, as well as a point of contact whenever you experience technical issues. The support standard should be 24/5 with additional tools such as tutorials and learning materials to improve your trading abilities.
A trading and charting platform
Your charting and trading platform helps you to view the historical price charts of the trading instrument of your choice, as well as providing you with the order tickets required to place and manage your trades. Some brokers might have a charting platform that is separate from the brokers’ platform. With the arrival of advanced trading technology, with MetaTrader products you now have the luxury of a brokerage and charting platform all in one place.
Here are some of the MetaTrader trading platforms:
- MetaTrader 4
- The MetaTrader WebTrader
- MetaTrader 5
- The MetaTrader Supreme
With these platforms, you can trade using a demo account and can use this account to implement the trading plan, which will be covered in the next section of this article. The risk-free environment gives you the chance to learn without feeling like you are in a pressure cooker.
How to learn to trade
Before going onto the topic of how to learn to trade, it might be useful to spend some time describing the trading areas you need to learn about. Most of the time, beginners love to learn everything. However, even if that was a possibility, most people will find it extremely overwhelming and give up. The only option is to break it down into small trading chunks to prevent that from happening.
Looking at how to trade forex, here are some of the most important elements to consider:
Which timeframe would you trade?
People who have just started a life of trading also have a busy life outside of the market. Most have businesses or jobs that do not allow them enough time to trade. Organising your trading time is an important factor when learning how to trade. For instance, if you are interested in learning how to trade forex, it just might be the thing for you, particularly since the market is open 24 hours a day, five days a week. This allows you to trade when you can, without the stress of worrying about a closing market.
Taking a look at the market as well as the timeframe you would like to analyse can help you organise your day. As a trader, you can check available charts at random and flit between different timeframes to take a look at the way the market is moving. The analysis of the market should be for a specific purpose so you do not end up making rash decisions, which can have a huge impact on the outcome of your trades.
- The European Session: 6 am – 5 pm GMT
- The US Session: 1 pm – 9 pm GMT
- The Asia Session: 10 pm – 5 am GMT
On your charting platform there are nine chart timeframes available:
- 1-minute chart
- 5-minute chart
- 15-minute chart
- 30-minute chart
- 1-hour chart
- 4-hour chart
- Daily chart
- Weekly chart
- Monthly chart
What markets will you focus on?
Once you have decided on your trading sessions and your trading timeframe, the next thing to consider is the best market for you to trade in on the time selected. Here are some examples. With these markets, you trade via exchange-traded products or CFDs (contract for difference):
- UK Shares
- The Stock Market Index
- Commodity European Shares
- Stocks and ETFs
It is difficult to learn how to trade on all of these markets, so you need to learn how to trade forex, because it is the major aspect of this article and the most profitable way to trade.
What are the tools you will use in deciding a place to buy or sell trade?
When making a decision to buy or sell, most traders make use of fundamental analysis or trading analysis and sometimes, a combination of both tactics. Technical analysis is the study of trading indicators and price charts. There are many trading indicators or chart patterns available to traders.
Most people believe that a fundamental trader needs to be well educated in economics before they can use it to make decisions. This is because fundamental analysis is the study of turning points, company news and economic data in the market. However, this is not the case, as there are many trading blogs and economic calendars that can help with decision making.
What risk management techniques can you use to exit a trade in profit or loss?
Placing a buy or sell trade after opening a trading account is not difficult. As a matter of fact, this is something even someone who does not know about trading forex can still find a way around. The hard part is placing a trade that is profitable; it requires some training and skill. As a trader, you need to understand how to minimise loss, maximise profit, and how to exit a trade, as opposed to making decisions on emotions and a sixth sense.
This approach could be a long-term mistake as anything can happen in the market, which means that any approach that is done as a routine, rather than a strategy, will definitely backfire when things do not go the way you expect.
How can you stay up-to-date with market news and new strategies?
Getting into the trading world can help you accelerate your training. Looking at the market from the viewpoint of a professional trader can give you the confidence to analyse and trade the market by yourself.
The trading plan
Now that you know a lot about profitable aspects of trading forex, as well as the key elements you need to be aware of and the ones you need to learn, here is how you can start trading immediately:
Take time to read
One of the best ways to learn how to trade is to read as much as you can about trading knowledge. This is something beginners find very difficult. In most of the useful forex and CFD training courses out there, you will learn all you need to know to become a profitable trader. You will also get a certification on the successful completion of your course.
The best way to learn to trade (and the best way to learn anything) is through watching the professionals work in live market conditions. You can sign up for webinars, which will help you get the inside scoop on the latest market developments.
Whatever you read, whatever you watch, does not matter if you do not take out time to practise. Taking out time to practise what you have learnt is essential. You can practise via the free demo trading account offered by the majority of brokers. Once you have practised enough, you will become confident in your trading methods; confident enough to open a live trading account where you start reaping the benefits of your commitment and hard work.
The truth of the matter is that trading forex is one of the most profitable ventures to engage in, but something that has made this profitable market seem like a bad investment is the fact that many invest without any knowledge of the market. Many look at it as a hit-and-run investment, and some others look for shortcuts to making the investment profitable.
The truth is that every investment or investment plan has to start from the standpoint of useful information with the zeal to match. As you move on, while you continuously update yourself on what it takes to trade forex, you find that it is not as bad an investment as people would like you to believe.
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A bad investment is bad, but no investment is worse. If you do not invest, then you will always remain at the same point, irrespective of how much money you are making. The only thing you can do wrong is dive into an investment without proper knowledge of how things work.
The information provided in this article on trading forex is very useful, both for beginners and seasoned traders, and it all points to the fact that if things are not going your way in the forex market, you need to go back to the drawing board and see where you can make changes. If you are in the profitable loop then look for how to improve because there is nothing worse than doing the same thing over and over again – at some point, you will find yourself in the same position you started at in the first place and, believe me, it’s really not where you want to be.
Traders often ask themselves how to trade forex, but only a few take the time to get and digest the information required to trade properly. The information here is more than enough to start – a good foundation to build on.
This article is intended to be used, and must be used, for educational purposes only. It is very important that you do your personal analysis and make your investments based on the situation you find yourself in at that moment. For more information, you should seek advice from an Independent Financial Adviser in connection with this information, and verify any information you wish to make use of from this article, whether for the purpose of making an investment decision or otherwise.
If you enjoyed our article or have any topics you’d like us to cover get in touch and let us know your thoughts. You can leave us a comment below and we’ll get back to you.