Trading Forex for beginners summarized

21 February 2020

Beginner Forex traders face a vast amount of information when learning how to trade professionally. Learning where to start can greatly reduce the stress and make the process easier.

For this very purpose, we've picked top 10 steps beginner traders should take to advance in trading

Learning the basics (currency pairs)
Learn the software (MT4, MT5)
Learn with demo accounts
Find a reliable service provider
Use the service provider’s resources such as tools and guides
Read books on trading and watch videos online
Learn various trading strategies and test them
Create a plan for reading news and doing independent analysis
Keep weekly track of your progress
Start placing live trades

All of these may look overwhelming, but beginners usually take it step-by-step so that the learning material is always easy to handle.

Forex trading for beginners is extremely hard, it requires hours of hard work. Traders need to stay updated on the news daily. Developing and testing new strategies also takes a lot of time. All in all, it’s not something people can do in a week. It could take months, and sometimes even years.

Even the most experienced traders tend to learn something new on the market.

How To Start Building Your Forex Trading Strategy

Ways to learn Forex trading basics for beginners

Learning how to trade Forex consistently profitably is highly challenging. In contrast, acquiring competence in any profession is also difficult and requires hard work. Why should trading be any different? The key to success is having a desire to become a professional trader and working hard towards your goals.

You can find a lot of educational material online. Most brokers offer their clients tools to learn how to trade forex using certain trading platforms and teach them how to use trading terminology.

Simply copying other traders' strategies will not be affective. Every trader is unique and has a different trading style. What works for one trader may not work for you. The best answer to the question on how to learn Forex is to start. However, keep in mind that until you become proficient and profitable in demo trading, it is not recommended to go live. When start trading live, you should only risk the amount that you can afford to lose.
Learn Forex trading for beginners

Forex trading for beginners take time and resources. There can be many mistakes on the learning journey. However, mistakes are great opportunities to grow professionally. There are three general ways that traders learn how to trade:

Don't like reading? Watch our Forex introduction video:

Learning through online guides and trading books
Learning from signal providers and successful traders
Learning from your own mistakes

All three of these have their advantages and disadvantages, but let’s focus on some tried and tested strategies.

Learning Forex for beginners doesn't have to be expensive

It might sound surprising, but learning Forex trading for free is a definite possibility in this day and age. There's an extensive quality educational material online. Most brokers offer free demo accounts to their clients. Demo accounts enable traders to place orders in a live trading environment without risking real money. Demo trading is highly useful when learning how to use a trading platform and develop trading strategies.

Demo trading is great for practice, however, they are very different from trading live. Yes, the markets move the same and everything seems similar at one glance, but trading using real funds and using virtual money are two very different things psychologically. When trading live, traders are influenced by greed, fear of losing money, they hope that trades will earn them more, etc. Human emotions are considered as flaw in trading as they can ruin trading balance. When transitioning from demo to live, it's recommended to only use the money you can afford to lose. It's important to gain experience in the markets before you risk your hard-earned dollars.

Common mistakes that beginners make

Not get prepared for trading

Every trader makes mistakes. Successful traders learn from their own mistakes. They also learn from other people's mistakes. Trading is not like having a job with steady income or a gambling house. Trading professionally is similar to running a business, Some months are profitable, some months are not. Traders should be ready for drawdown periods. If you plan to pay bills from your trading revenue, you will force trades when market doesn't give you trading opportunities and lose money. Trades should never be done out of necessity. Often, trading is compared to hunting. A trader similar to a hunter should not be wasting bullets on shooting bushes. A good hunter waits for an opportunity, aims and shoots when the conditions are ready. If you are a swing trader or a position trader, you might feel bored while waiting for an opportunity to come. Many swing traders place only one or two trades per month. Boredom can make you place multiple ill-prepared orders. To counter feeling bored, many traders have side hobbies or side businesses.

No prior research

No professional trader wakes up and buys or sells a random pair because he or she feels like it. Trading professionally requires deep knowledge of the currency pairs that you're going to trade. Every currency pair is different: they have different trading volumes, different liquidity, different spreads, etc. It's also highly important to understand the economical and political factors that influence given currencies. Fundamental traders are highly dependent on such data. However, technical traders also need to keep an eye on the economic calendar, as news announcements can increase volatility on the market.

Trading against a trend

Many professional traders trade in and against trend direction, however, it's recommended for novice traders to avoid trading against trends. Placing orders against the market sentiment is dangerous and requires certain skills and experience. Keep in mind that it's not critical to be a genius and guess every tops and bottoms in a trend. It's essential to make money. It's much safer for novice traders to follow trends than look for trend reversals.

No weekly/monthly goals

People with goals succeed in life because they know where they are going. It's as simple as that. Your goals cannot force markets to give you more trading opportunities than it does, however, goals help you stay focused and motivated when trading. Having proper goals are creating healthy expectations and will help you avoid over-trading.

Leverage and trade size

Leverage is undoubtedly a very useful tool when trading Forex, but it’s also super dangerous when overused. CFD trading is highly leveraged. Traders use leverage to increase their purchasing power by borrowed funds from their own broker. Leverage can grow your profits when a trade goes in the predicted direction, and it can also grow your losses too when a trade goes against your plan. Forex learning for beginners should always be focused on risk management, as the failure to manage their risks is the number one reason why most beginner traders lose money. Profitable and consistent trading is based on probabilities. When leverage is overused, single trades become too significant and can lead to blown up trading accounts. What's more, highly leveraged position can lead to negative trading balance since traders are using borrowed funds to open positions. Traders might end up losing more than what was on their trading account prior to opening a trade. Luckily, many brokers offer negative balance protection to their clients.

Key steps to getting started with Forex trading

Let's summarize the key factors on how to learn forex trading:
Forex trading lessons for beginners

Finding a reliable service provider

Forex trading is done through broker companies. These companies come in various shapes and sizes, so the trading experience can be very different depending on which you choose. Great brokers have reasonable fee structure, are well regulated and have great product. Most Forex brokers offer MetaTrader platforms, along with mobile and web trading terminals. What's more, the vast majority of brokers offer free of charge demo accounts. When you are unsure on how to study Forex trading, it's important to pick a broker that provides clients with extensive educational material.

Start trading with the amount you can risk

Demo trading is essential in developing trading skills and strategies. In addition, Demo accounts help trade risk-free and gain confidence. However, there always comes time to deposit real funds. As already mentioned, live trading comes with certain challenges such as increased greed, fear, hope, boredom, etc. Even if you were successful in trading demo, it's unclear whether these factors will affect your trading or not. Therefore, it's recommended to only deposit the amount you can afford to lose.

Choosing a trading software

There are various trading software programs on the market. The most popular ones are MetaTrader platforms. MetaTrader 4 is generally used for trading currencies, whereas MetaTrader 5 is an all-in-one platform. While both may seem outdated, they offer all the necessary tools for technical analysis. The main reason why these platforms are still so popular is that both of them are highly reliable and capable. Your broker might be offering you some other platforms such as cTrader and others. At the end of the day, it's up to you as a trader which one to choose. Your platform of choice should be offering the trading instruments of your interest, be user-friendly and offer reliable execution.

Try new strategies

Every trader is different and has his/her own trading style. Which is why it's essential to try different strategies in order to find out what works for you. There are two ways to test trading strategies. You can either demo trade or backtest before going live. Demo trading uses live data to create trading simulation. Demo trading is similar to live trading, the only difference is that the funds are virtual, and trading psychology is different. When backtesting, the trader compares strategies to historic data and therefore, everything happens much faster.

Forex trading for beginners - FAQ

How do I learn Forex trading step by step?

There are many approaches to how to start trading Forex sustainably. You can learn from the educational material that is widely accessible on the internet, and you can also learn from your own mistakes. The first step in learning how to trade is to learn how trading works, what are the concepts, trading terminology and how to use trading platforms. Afterwards, it's important to learn about trading strategies, traders psychology and risk management.

How do I choose a service provider?

Service providers are typically selected based on taste and preferences. However, most people tend to pay a lot of attention to a company’s license. And rightfully so, well regulated brokers are safe for traders. When selecting a broker, it's also essential to pick the one that offers the assets for trading that you are interested. In addition, trading fees and trading platforms are also critical.

How do I do research?

Researching includes learning about political and economic developments that can influence the markets. Research is done by gathering information. Research takes most time for position traders, swing traders and investors. Intraday traders spend more time on technical. Most brokers offer economic calendars for such purpose.

What software should I pick?

Your software of choice should be easy to understand, easy to use, and have all the necessary features that your trading style needs. In addition, make sure the platform offers the trading instruments that you want to trade. Good trading platforms are usually free and offer demo accounts.

What types of Forex trading software is there?

There are Forex trading platforms that are solely built for FX pairs. And there are multi-asset platforms that offer various asset classes, including Forex, stocks, indices, cryptos, commodities, etc. What's more, most trading platforms come with mobile and web terminal versions as well.

Which currency pairs should I trade?

There are Major, Minor, and Exotic currency pairs. Majors are the most liquid and are the preferred choice by both professional and novice traders. Majors pairs have major world currencies, such as EUR, JPY, GBP, CHF, CAD, etc. coupled with USD. Major pairs have the best spreads and are the most attractive. Minor currencies are currency pairs of major world economies that do not include US Dollar in neither quote nor base currency. Exotic pairs have at least one currency from a developing country in a pair. Typically, exotic pairs have low liquidity, high spreads and most traders avoid trading them.

Why shouldn’t I use leverage?

Leverage is a very useful tool, especially in Forex, where exchange rates change very slowly and not too sharply. Leverage helps traders benefit from even small changes in currency valuation. Without leverage, CFD trading wouldn't be possible. However, it could be extremely dangerous too if overused. Leverage is a double-edged sward that can increase income and similarly increase losses.

What is the best way to learn forex trading?

The best way to learn Forex trading is to dedicate your time and energy. Read, watch and learn everything that you can get your hands on. Unfortunately, there's a lot of low quality information online. The more you learn, the better you'll be at telling the high quality content from the low quality one. Learning how to trade takes time. You should avoid risking more capital than you can afford to lose while still learning. In fact, Demo trading is ideal for beginner traders.

What to learn in Forex trading from the very beginning?

From the very beginning, it's important to learn how to use terminology and trading platforms. Learning terminology will increase the speed of your learning process. In addition, communication with other traders will become easier. Learning how to use a trading platforms, order types and trading indicators is also highly beneficial. After learning about technical details and develop trading strategies that fit your personality, it's essential to work on your psychology.

How to learn to trade Forex, and how long does it take?

Learning how to trade profitably and consistently can be a different journey for every trader. As already mentioned, beginners start with the basics such as terms and trading platforms and advance to developing trading strategies and trader's psychology. Learning period can take a couple of years. Learning any profession also takes time, and trading professionally is no any different. Developing a trading journal can speed up the process, as journals help traders learn from their own mistakes.