How to start forex trading

Forex is the world's largest and most liquid financial market with an average daily turnover of $6.5B. This gets really exciting and the next question to be asked is how can I get my share of this daily flux of money in the financial markets?

This is where forex trading comes in, a place at the table of institutional banks, hedge funds, commercial hedgers and so on, that provide low barrier entry to small players known as retail traders to participate and profit off financial transactions alongside the big players.

Are you excited to take on this great ocean of financial transactions moving around the world daily?

If yes? we have got you covered with a comprehensive and fundamental guide on how to successfully trade forex and profit off foreign exchange transactions.

Is trading right for you?

Trading the financial markets is the only business in the world where the amount of wealth that can be extracted is unlimited! Forex trading can be a very great source of wealth but just like every other business, forex trading also comes with its own challenges, ups and downs, rules and principles that every aspiring profitable trader must see to.

If you start your career in forex trading the right way, it can be a life-changing experience, but if you don't take heed to discipline and the principles that are necessary to become a profitable forex trader, it also can be a detriment to your finances.

Starting a career in forex trading requires optimism, discipline, patience, and the mindset that forex is not a quick-rich scheme. If you possess all these qualities now, then you are well on your way to becoming a successful forex trader in just a few months.

Where do you go to trade forex?

For non institutional and retail forex traders to participate in foreign exchange transactions alongside the big players. They can't trade directly in the interbank market but with a registered foreign exchange dealer (a forex broker) acting as an intermediary and liquidity provider for retail traders and investors.

Finding a good and reputable online forex broker

You must find a trusted, established and reputable forex broker with very accurate data of price movement, no manipulation and low-cost trading fees or spread.

Any forex broker that meets these criteria is a confidence boost for traders because it will save a lot of mental, emotional and physical stress and ultimately put traders in the right frame of mind to win.

What criteria should you look out for when choosing a reputable broker to start forex trading?

1. The Broker must be regulated and licensed by top financial bodies like SEC (Security and Exchange Commission), CFTC (Commodities and Futures Trading Commission) and FINRA (Financial Industry Regulatory Authority.
2. The broker must have an insurance policy on your funds escrowed in their account.
3. The customer service must be easily accessible. You can rate the customer service prior to registration by asking them questions to see their response time and how ready they are to get problems solved.
4. The chart of price movement displayed on the broker trading platform must be clear, without gapping and in real-time with the interbank data feed.

You must rate a forex broker before committing your funds to trade on the brokers’ trading platform.

You can register with a reputable forex broker like FXCC to trade forex, CFDs, metals and many more. Our educational resources, 24/7 support, and the provision of a diversified portfolio will help you to change your financial future with just simple clicks on a few buttons.

Determine your trading strategies

It is very important to determine what kind of trading strategy befits your personality as a forex trader and stick to it. This will ensure your smooth sailing trading career. Forex trading strategies are as follows:

1. Scalping

Scalping is a special kind of short-term trading strategy that involves multiple short-time trades in a day aimed at accumulating smaller profits (smaller pips) into a large profit.

Scalping is known to be the fastest method to profit from the forex market and it requires a special understanding of price movement in lower time frames (15 - 1 Minute chart) and the pair that is been traded.

2. Day trading

Day trading is the most common trading and most reliable trading strategy. It involves the buying and selling of financial instruments within the same trading day so that all positions are closed before the next day's trading activities so as to avoid unmanageable risks and negative price gaps that may occur.

3. Swing trading

This involves profiting off a price swing by holding on to a trade for a couple of days, exposed to overnight and weekend risks. Because the trade is usually held for weeks, it must be backed by fundamental analysis.

4. Position trading

This is a long-term trend following strategy very similar to swing trading but is usually held for weeks and maybe months requiring great patience and discipline. The position trader must have the knowledge of price expansions and retracements in order to know when to exit partials of his profits and how to manage risk using stop loss or trailing stops.

Using the two main types of analysis

The strategies mentioned above involve some form of analysis. Basically, two main types of analysis are known - technical analysis and fundamental analysis.

• Technical analysis: the study of historical price movements, candlesticks and price patterns of a specific financial instrument. It also involves using indicators to analyse past price movement and predict future price movements.

Technical analysis on EurUsd price movement using moving averages and trendlines.

• Fundamental Analysis: means to analyse the primary drivers of a currency's intrinsic value thus enabling forex participants to be able to craft informed trading decisions.

Forex trading terms and terminologies

Starting to trade forex is relatively easy once you have the trading platform but with much ease when you are acquainted with considerable market knowledge, trading terms and terminologies.

1. Currency pair: is a quotation of the relative value of a currency unit known as the quote currency against the other known as the base currency.

2. CFD: refers to Contract For Difference which are derivative products that enable traders to speculate on financial assets like shares, forex, and bonds without having to take ownership of the underlying traded asset.

Trading a CFD means that you agree to exchange the difference in the price of an asset from a point at which the contract is open to when it is closed.

3. Commodity currencies: These are currencies that are directly affected by commodity products due to the heavy dependence on the exports of their raw materials for income.

Currencies like the Australian Dollar, New Zealand Dollar, and Canadian Dollar.

4. Spread: This is the difference between the bid price (selling price) and the ask price (purchase price) of a financial instrument.

5. Long/short position: A long position simply refers to a buy trade with the expectation that the price movement will rally higher and conversely a short position refers to a sell trade with the expectation that price movement of the financial asset will decline lower.

6. Pip: Pip in short means “point in percentage”. It represents the smallest change in a currency pair exchange rate. Profits or losses when trading is usually calculated in Pips.

7. Leverage: Retail forex trading uses the leverage made available by a broker, to execute market orders and open trade positions that a retail account balance usually can't so as to maximize profits.

8. Exchange rate: The rate at which one country's currency (the quote currency) can be exchanged for the other (base currency).

For example, if the GBP/JPY exchange rate is 3.500, it would cost 3.50 Yen to buy 1 GBP.

9. Risk/reward ratio: Pre-defined loss to profit target for a particular trade. The most common risk-to-reward ratio is 1:3 meaning that the trader is willing to risk $1 to make $3.

10. Risk management: Forex trading entails taking some considerable financial risk. Hence risk management is one of the most important skillsets in forex trading that involves identifying, analysing, minimizing and mitigating risk.

Open a trading account.

Having decided on the forex broker of your choice, your type of market analysis and trading strategy. You are good to go to open an account and trade.

First, you must register an account with the forex broker of your choice by filling out all the required information correctly.

As a beginner forex trader who is just starting out. It is advisable to open a demo trading account and practise different trading strategies without any financial risk, gain enough experience and ultimately be consistently profitable for at least 3 months before making a bold move to trade leveraged real accounts.

Download and install the broker trading terminal into any of your devices, login to your trading account and start trading!

How much do I fund my account?

When you are ready to open a live trading account, you may be curious about how much money you need to fund the account. Or, perhaps you're concerned about starting with a small amount of money.

Brokers do offer different types of accounts to fit the varying financial capacity of their customers. Therefore, you can start forex trading without tying up a lot of your cash and you need not trade beyond your means.

The leverage provided by brokers enables the equity of a  forex account to trade larger positions which can result in greater profits or losses.

Good Luck and Good Trading!

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