Forex trading for beginners

A large number of investors in today's market opt for Forex trading as a means to enter the global financial arena and commence their trading activities. It is commonly referred to as FX, which is short for Foreign Exchange. This rapidly evolving currency market is widely regarded as the ideal choice for newcomers in the trading industry. Well-known banks like JP Morgan and UBS, along with a range of financial institutions and Forex brokers, serve as the economic entities that facilitate the buying and selling of currency values like US Dollars, Euros, and more.

The Foreign Exchange market enables the trading of a wide range of securities in different currencies, catering to the unique investment strategies of individual traders. Due to its remarkable adaptability in terms of timing and market conditions, FX presents numerous advantages and possibilities for all participants in the financial market.

The potential of forex trading is really significant, and every trader has a huge list of assets to diversify their portfolio, reduce risks and increase the chances of profit. But before you start, you need to arm yourself with a certain amount of knowledge. In this comprehensive guide, we will provide you with an understanding of the basics of forex trading, and you can start making your first profitable trades.

What is Forex Trading?

Forex is an abbreviation for foreign exchange, which refers to the conversion of one currency into another. Traders swap currencies for various purposes, such as conducting business, engaging in tourism, and facilitating global trade.

Forex trading involves the art of predicting currency price movements in order to generate profits potentially. Trading currencies involves pairs, where a trader predicts the rise or fall in value of one currency against another by exchanging them.

The forex market allows for the trading of currencies around the clock, five days a week. Banks, corporations, investment firms, hedge funds, and retail traders frequent this market.

The worth of a currency pair is impacted by trade movements as well as economic, political, and geopolitical occurrences. This generates daily fluctuations that can provide a forex trader with fresh prospects. With the help of online trading platforms offered by renowned brokers such as FXCI, you have the convenience of purchasing and selling currencies using various devices like your phone, laptop, tablet, or PC.

The forex market is the largest and most fluid financial market globally, boasting an approximate average daily turnover of over US$6.5 trillion. This figure has significantly increased from $5 trillion in recent years.

An essential aspect of the forex market is the absence of a central marketplace or exchange, as all trading is conducted electronically through computer networks. This type of market is commonly referred to as an over-the-counter (OTC) market.

Understanding Currency Pairs

The foreign exchange market is a common platform for conducting trades involving currency pairs. It allows individuals to buy and sell currencies and convert them for the purpose of international trade and investing. In general, the forex market operates five days a week, round the clock.

Forex trading entails the ongoing buying and selling of different currencies. When investors decide to purchase a currency pair, they acquire the base currency while simultaneously selling the quoted currency. The bid price signifies the quantity of quote currency required to obtain a single unit of the base currency.

Conversely, when the currency pair is sold, the investor offloads the base currency and acquires the quote currency. Therefore, the price at which the currency pair is sold represents the quantity of the quoted currency that will be received in exchange for one unit of the base currency.

However, while engaging in currency trading, investors sell one currency with the intention of purchasing another.

Examples of Currency Pairs

The euro against the U.S. dollar, commonly referred to as EUR/USD, is the currency pair that experiences the highest level of trading activity. Here's an example to help you understand how to read currency pairs:

In the year 2024, Roy decides to embark on a vacation to the vibrant city of New York. He lives in Canada and uses Canadian currency exclusively. So, he heads to the currency exchange shop and wants to convert his CAD to USD. The store clerk informs him that the exchange rate is 1.3 USD/CAD. This implies that one United States dollar is equal to one point three Canadian dollars.

In this particular case, USD is regarded as the base currency, while CAD is the quote currency. Therefore, Roy can convert $1.3 Canadian dollars for every $1 US dollar at the currency exchange store.

Internationally, there exists a wide array of currency pairs, which are classified according to the frequency and volume of their trading activities. The major currencies have the highest trading volume when compared to the U.S. dollar, which serves as the benchmark currency. Here are some of the major currency pairs:

• GBP/USD
• AUD/USD
• USD/CAD
• EUR/USD

Exotic Currency Pairs

Exotic currency pairs refer to currencies from developing or emerging market economies that are paired with a significant currency. One instance would be the pairing of USD/SGD. These combinations are recognized for being less liquid and having wider spreads, which makes them more risky.

Mechanics of Forex Trading

Any process of trading on the Forex market involves the trader passing through certain stages, from choosing a currency for trading to closing the deal and getting the result. Let's consider an example of such a process:

1.Selecting a Currency Pair for Trading

FXCI provides a wide range of over 80 currency pairs, including popular ones such as GBP/USD and more unique options like HUF/EUR. When you engage in trading with us, you'll have the opportunity to make predictions on the potential increase or decrease in value of various forex pairs using CFDs. Utilize leverage to expand your forex trade size by making a small upfront deposit, also known as margin.

Nevertheless, this implies that your losses and gains can greatly surpass your margin amount since they are computed using the entire position size rather than just your margin.

Prior to selecting an FX pair to trade, it is essential to conduct both fundamental and technical analysis on the two currencies involved in the pair. This includes evaluating the movement of the 'base' (the currency on the left) and the 'quote' (the currency on the right) in relation to one another.

2.Decide Whether to 'Buy' or 'Sell'

After selecting a currency pair to trade, it is crucial to determine whether you prefer to "buy" or "sell" based on your analysis.

If you anticipate an increase in the value of the base currency compared to the quote currency, it would be advantageous to purchase the pair. Alternatively, consider selling if you anticipate a contrary outcome. This is because the price of a currency pair reflects the amount of quote currency needed to purchase one unit of the base currency.

As an illustration, if the quoted price for GBP/USD stands at 1.28000, it implies that you would need to expend $1.28 to acquire £1, indicating that the pound holds a ber position compared to the US dollar.

3.Set Your Stops and Limits

It is crucial to have a well-defined strategy to navigate the highly unpredictable forex market, ensuring optimal timing for entering and exiting trades. There are multiple options available to help you effectively manage your risk while trading forex:

• Regular stops will automatically close your position if the market goes against you. It's essential to keep in mind that regular stops do not provide any defence against slippage.
• With guaranteed stops, your trades will be closed at the exact price you choose, regardless of any sudden market movements or gaps. If a guaranteed stop is triggered, the cost will slightly increase.
• Trailing stops will track favorable price changes and automatically close your position if the market turns against you. Utilizing limit orders can help you attain your desired profit objective. Your position will be automatically terminated once the price reaches your selected threshold.

4.Open Your First Trade

When deciding to open a trade, we recommend that you base your decision on your previous knowledge and not only on your intuition. Wait for a really suitable moment to open a trade and only then make a decision.

5.Keep a Close Eye on Your Position

After initiating your trade, you can keep track of your FX position in the 'open positions' area of the trading platform. Additionally, you have the option to configure price alerts that will notify you via email, SMS, or push notifications once a specific buying or selling percentage or point is achieved.

Despite having these alerts in place, staying informed about current news and political happenings is crucial for staying ahead in the forex market.

6.Exit Your Trade and Realize Your Gains or Losses

When you're ready to end your position, go to the 'positions' tab, choose your position, and click 'close.' On the other hand, consider executing a trade that is the opposite of the one you initially entered.

Factors Influencing Forex Prices

Multiple elements can influence the worth of currencies and consequently affect forex trading. These encompass various factors such as economic indicators, political occurrences, and market sentiment.

Economic Indicators

Economic indicators are reports published by governments and organizations that offer insights into the overall condition of an economy. Several important economic indicators can impact forex trading, such as gross domestic product (GDP), inflation rates, employment figures, and trade balance.

Events in the Political Sphere

Political events, like elections, referendums, and shifts in policy, can significantly influence currency values. For example, a change in a nation's leadership can result in unpredictability and potentially a decline in its currency's value.

Market Sentiment

Market sentiment encompasses traders' general sentiment or perception towards a specific currency or the overall market. It is impacted by a multitude of factors, such as economic and political events, news, and speculation.

Risk Management in Forex Trading

Risk management involves the identification, evaluation, and mitigation of uncertainty in investment choices. Monitoring and managing the financial risks of investing in the financial markets is a crucial process.

Managing risk involves carefully assessing and quantifying potential losses in an online trade on FXCI, including factors like moral hazard. Based on this evaluation, appropriate actions are taken (or not) to align with your goals and risk tolerance.

Effective risk management helps minimize potential losses. Additionally, it can assist in safeguarding your account balance. When you experience financial losses, you become more vulnerable to potential hazards. On the other hand, reducing the potential for loss can enhance your opportunities for monetary gain in the market. It is an essential yet often overlooked requirement for achieving success in active trading. With a robust risk management strategy, even a trader who has earned substantial profits can gain everything in just a few catastrophic trades.

Position Sizing

The size of your position, or the number of units you trade, holds greater importance than the specific points at which you enter and exit trades when engaging in forex day trading. Regardless of the quality of your forex strategy, it is crucial to consider the appropriate transaction size to avoid excessive or insufficient risk. Excessive risk-taking can quickly drain a trading account.

Here are the steps to implement position sizing:

Optimize Your Risk Threshold for Each Trade

It is essential to establish a risk limit per trade when determining the size of your forex position. Establish a risk limit, either as a percentage or a specific dollar amount, for every trade. If you possess a trading account with a balance of $10,000, you have the opportunity to optimize your trades by adhering to a 1% risk restriction. This means that for each trade, you would only be risking $100, allowing you to maximize your potential gains while minimizing possible losses.

If your level of comfort with risk is 0.5%, you have the option to put $50 at stake for each trade. The amount you can spend will vary based on the size of your account and the highest percentage you choose. This restriction acts as a reference for every transaction you conduct.

Determine the number of pips you're willing to risk for each trade

Now that you've established the highest level of risk for each trade in your account, you can shift your attention to the trade at hand.

The variation between the entry point and the point where you position your stop-loss order determines the pip risk on each trade. A pip is the tiniest movement in the price of a currency, also known as a "percentage in point" or "price interest point."

Understand the Value of Each Trade in Terms

When you engage in currency trading with the US dollar as the second currency, also referred to as the quote currency, and your trading account is in dollars, the pip values for various lot sizes are established. The value of a micro lot is $0.10 per pip. A small lot is priced at $1. Additionally, there is a charge of $10 for a regular lot.

Calculate the Appropriate Position Size for Each Lot

The amount at risk is calculated by multiplying the number of pips at risk, the value of each pip, and the number of lots traded. The position size in the given formula refers to the quantity of trades made.

Here's a formula you can use to determine the optimal position size:

Choosing a Forex Broker

Selecting the appropriate broker is essential for achieving optimal results in forex trading. When choosing a broker for your demo account, it's necessary to consider several factors:

• Regulation: The forex market operates with minimal oversight, leaving it susceptible to deceptive practices and illicit schemes. For optimal protection, it's essential to select a broker that is overseen by a well-respected financial authority, like the FCA in the UK or the SEC in the US.
• Trading fees: Brokers generate revenue by imposing costs on every transaction you execute. It's crucial to compare the fees of different brokers as they can vary greatly. This will help you make an informed decision. Seek out brokers that offer highly competitive spreads and minimal commission fees.
• Customer service: Customer support is of utmost importance in the dynamic realm of forex trading. It is essential to select a broker that provides various means of communication, including phone, email, and live chat. Additionally, it is crucial to choose a broker known for their prompt and helpful responses.
• Trading platform: Choosing the right trading platform is crucial for accessing the forex market according to your specific requirements and preferences. Seek out platforms that are easy to use, provide a diverse selection of technical analysis tools, and grant access to up-to-date market data.

Advantages of Demo Accounts

Forex trading is practiced without risking real money with a trial account. Demo accounts have many advantages:

• Learn without risk: Demo accounts allow you to learn forex trading, practice techniques, and test trading tools without risk. This is extremely helpful for newcomers in the forex market.
• Develop skills and confidence: Practice on a demo account to gain experience, trust, and forex trading skills. This involves market trends, chart analysis, and risk management.
• Evaluate brokers: Demo accounts let you test forex brokers and systems before opening a genuine account. Their trading conditions, customer support, and software are available. This might help you choose a live trading broker.

Popular Trading Strategies for Beginners

The main criteria for choosing the best trading strategies for beginners are minimal risk and ease of use. That is why the two best strategies for beginners are trend following and support and resistance.

Strategies That Follow Trends

Given the objective of trend traders to capitalize on dominant trends and maximize their profits, they formulate strategies centred around the patterns exhibited by a particular asset. A strategy focused on maximizing diverse and varied text would be developed with the belief that the price of an instrument will persistently rise or fall, and this pattern will not reverse.

If you're engaging in an upward trend, it's advisable to maintain an extended position. However, it's prudent to sell your asset when the trend starts to decline.

Short-Term and Long-Term Trends

Traders who follow trends have the option to employ strategies that concentrate on either short-term or long-term trends. For example, traders who focus on short-term trading, like day traders, will pay close attention to brief timeframes and patterns that can be recognized within a single day to capitalize on temporary price changes and generate profits. To optimize diverse content and incorporate a wide range of alternatives, traders can employ strategies like scalping or intraday trend-following strategies for short-term trends.

Intraday Trend Trading

For traders seeking to capitalize on short-term trends, intraday trend trading is the perfect strategy, as it allows them to maintain positions until the close of each day. They can analyze current patterns that are in effect throughout the day for short periods. As an illustration, in the event of an upward trend, a trader might consider implementing a trailing stop prior to the lowest point and at the subsequent higher low, should a reversal occur. If they are in a downward trend, the trader can employ a strategy of selling short.

Long-Term Trend Trading

Trend traders who have a long-term approach prefer to maintain their positions for extended durations, ranging from a few weeks to several months or even years. Experienced long-term traders employ fundamental analysis and concentrate on the extended trend and various factors that could potentially influence it.

Support and Resistance

The value of financial assets is influenced by the interplay of supply and demand, much like any other trading market. Support and resistance levels in financial markets effectively demonstrate the interaction between supply and demand forces, which ultimately determine the prevailing price of an underlying asset. Typically, prices increase until there is more supply than demand, which marks the point of resistance. At this juncture, prices begin to decline. Likewise, prices will decrease until demand surpasses supply, marking the support level where prices will start to rise. An effective market approach involves purchasing an asset when prices reach the support level and selling when prices reach the resistance level.

It's worth mentioning that support and resistance levels aren't precise price points but instead, areas where demand and supply can fluctuate. Market participants closely monitor support and resistance levels, eagerly seeking opportunities that may arise from shifts in supply or demand.

Building a Trading Plan

A trading plan is a comprehensive tool that helps you make informed decisions for your trading activity. It assists in determining the optimal choices for your trading activities, including what to trade, when to trade, and how much to trade. It's essential to create a trading plan that is unique to you. While you can use someone else's plan as a reference, keep in mind that their risk tolerance and available funds may differ significantly from yours.

Ensure that your trading plan encompasses a wide range of valuable elements while consistently addressing the following:

• What drives you to engage in trading?
• Optimize the amount of time you're willing to invest
• What are your objectives in trading?
• Assessing your tolerance for risk
• Optimize your trading funds
• Guidelines for managing personal risk
• Discover the wide range of markets available for trading
• Optimize your approaches
• Procedures for maintaining records

A trading plan and a trading strategy have distinct purposes. While a trading strategy focuses on the specific steps to enter and exit trades, a trading plan encompasses a broader scope of considerations.

After you have documented your trading strategy:

1. Remain committed to it.
2. Avoid circumstances where you hastily deviate from your plan due to emotional reactions such as fear or greed triggered by market fluctuations.
3. Develop a mindset that values and prioritizes discipline and consistency in your approach to executing and exiting trades.

Resources for Continued Learning

If you have managed to take some trading courses, you have made an excellent contribution to your future results. But it is essential to realize that in order to make money trading on a regular basis, you must also constantly upgrade your knowledge and skills.

Thankfully, you will find a considerable number of books, video courses, and online materials that are available for free training. Remember to visit our blog regularly because you will find a significant amount of valuable information here. And, of course, if you want to achieve fast results, we recommend you ask for mentoring from experienced traders, who will guide you through all the depths of trading, getting rid of the pitfalls that beginners often face.

Conclusion: Closing Thoughts

Engaging in forex trading has the potential to be a thrilling and highly profitable endeavour for individuals who are willing to dedicate the necessary time and energy to acquire knowledge and enhance their abilities. It provides versatility, ample liquidity, and the chance to benefit from changes in currency prices. Nevertheless, there are potential downsides to consider, and traders must be ready to handle these risks and make well-informed choices grounded in a comprehensive examination.

Suppose you have a keen interest in forex trading. In that case, it is crucial to enhance your knowledge by familiarizing yourself with FXCI and beginning with a demo account prior to taking any risks with actual funds. By committing yourself and maintaining a solid work ethic, you have the potential to excel as a forex trader and reach your desired financial objectives. Remember the need for learning, which should continue throughout your trading career. After all, even the most significant Forex traders who have achieved incredible heights are still learning - and that is indeed the right thing to do.

If you have managed to take some trading courses, you have made an excellent contribution to your future results. But it is essential to realize that in order to make money trading on a regular basis, you must also constantly upgrade your knowledge and skills.

Thankfully, you will find a massive number of books, video courses, and online materials that are available for training for free. Remember to visit our blog regularly because you will find a considerable amount of valuable information here. And, of course, if you want to achieve fast results, we recommend you ask for mentoring from experienced traders, who will guide you through all the depths of trading, getting rid of the pitfalls that beginners often face.