Forex Trading for Beginners: Learn Step by Step
Learn forex trading step by step for beginners with Tradehall, a leading online forex trading platform in the global forex market. At Tradehall, we offer online tutorials, demo accounts, PAMM, and EA robots, etc.
Forex trading is an international trading activity that involves the real-time buying and selling of different currencies in the foreign exchange market (Forex or FX open market).
Who trades forex? Most forex transactions are carried out by banks or individuals by seeking to buy a currency that will increase in value against the currency they sell.
So. let us explore what you will need to know about how to trade forex, how to leverage it, and what signal trade in forex works.
What forex means
When trading forex, you are always trading a currency pair – selling one currency while simultaneously buying another.
Each currency in the pair is listed as a three-letter code, which tends to be formed of two letters that stand for the region, and one standing for the currency itself.
For example, USD stands for the US dollar and JPY for the Japanese yen. In the USD/JPY pair, you are buying the US dollar by selling the Japanese yen.
Some of the most frequently traded FX pairs are the euro versus the US dollar (EUR/USD), the British pound against the euro (GBP/EUR), and the British pound versus the US dollar (GBP/USD).
To keep things ordered, most providers split pairs into the following categories:
The four types of forex pairs
- Major pairs – seven currencies that make up 80% of global forex trading. Includes EUR/USD, USD/JPY, GBP/USD, and USD/CHF
- Minor pairs – less frequently traded, these often feature major currencies against each other instead of the US dollar. Includes: EUR/GBP, EUR/CHF, GBP/JPY
- Exotics pairs- a major currency against one from a small or emerging economy. Includes: USD/PLN, GBP/MXN, EUR/CZK
- Regional pairs – pairs classified by region – such as Scandinavia or Australasia. Includes: EUR/NOK, AUD/NZD, AUD/SGD
Forex trading strategies for beginners
A forex trading strategy defines a system that a trader uses to determine when to buy or sell a currency pair. There are three known strategies in forex trading and they are:
Forex price action strategy
It involves the study of previous price movements to formulate technical trading strategies. This can be used as a strategy on its own or used in conjunction with a forex indicator.
Forex indicators are for technical analysis use. Forex traders use these indicators to forecast price changes (market trends) in the currency market. Indicators can be used over a variety of time periods, such as short, medium, and long term.
Some of the popular and major indicators are Stochastic graph, RSI (Relative Strength Index), and MACD (Moving Average Convergence Divergence).
Forex range trading strategy
Forex traders essentially look for support and resistance points in the chart.
It works very well with assets that have low volatility. Many people use different types of technical analysis to make most of this strategy.
Whereas to some people, this is a very simple one. When you use this strategy, you analyze different types of trends and make decisions according to them.
If you examine historical data, such as currency price, volume, and market performance, indicators seek to predict how the market will behave in the future and which patterns are likely to be repeated.
All these help a trader to enter or exit the market with more accuracy.
How does forex trading work?
Institutional forex trading takes place directly between two parties in an over-the-counter (OTC) market.
Four major forex trading centers in different time zones: London, New York, Sydney, and Tokyo spread transactions across. Since there is no centralized location, you can trade forex 24 hours a day.
Most traders speculating on forex prices do not take delivery of the currency itself. Instead, traders will make exchange rate predictions to take advantage of price movements in the market.
Forex trading terms to know for beginners
Short for percentage in points, a pip refers to the smallest possible price change within a currency pair. A pip is equal to 0.0001 because forex prices are quoted out to at least four decimal places.
Buyers willing to pay for a currency (the bid) and the minimum amount that sellers require to sell (the ask) determines the exchange rates. The difference between these two amounts and the value trades ultimately will get executed at, is the bid-ask spread.
Dealers trade forex in lots, or a standardized unit of currency. The typical lot size is 100,00 units of currency. However, there are micro (1,000) and mini (10,000) lots available for trading, too.
Some traders may not be willing to put up so much money to execute a trade because of those large lot sizes. Leverage is another term for borrowing money that allows traders to participate in the forex market. So, this excludes the amount of non-borrowed money otherwise required.
Trading with leverage isn’t free, however. Traders must put down some money upfront as a deposit or what’s known as margin.
Leverage in forex
How does forex leverage work? Forex leverage means using borrowed money to open a trade in the market. Usually, the broker that you work with will use the borrowed funds to trade.
Leverage enables traders to use a higher capital to increase the chances of profit. Leverage is an important component of CFD Trading.
The initial margin required by each Forex broker may vary depending on the size of the trade.
If an investor buys $100,000 worth of EUR/USD, he may need to keep $1,000 in the account as margin. In other words, the margin requirement would be 1% or ($1,000 / $100,000) or 1:100,000 leverage ratio.
The leverage ratio indicates how much the trading volume is increased due to the margin held by the broker.
Using the initial margin example above, the leverage ratio for the trade would be 100:1 ($100,000 / $1,000). In other words, for a $1,000 deposit, an investor can trade $100,000 in a given currency pair.
Of course, leveraging the capital can bring good results, but also can make you lose the initial budget quite easily.
Signal trade in forex
What is signal trade forex? Forex signal is an indication to determine whether to buy or sell the currency pair at a particular price. In the forex market, many signal providers are available which varies in accurateness.
A forex analyst or automated robot generates a particular forex signal based on technical analysis and fundamental analysis.
A forex signal can give a trader a clear idea of when to buy or sell. Forex signal services can be free or (paid) subscription-based. Short-term trades and not long-term trading strategies mostly use these forex signals.
Many forex signal services promise results, but the market is constantly shifting. Therefore, global events can influence the outcomes of forex dealings. either favorable or otherwise.
As a beginner, learning forex trading needs a step-by-step effort. Due to the different trading styles with various forex strategies and forex systems, new and seasoned traders are always learning daily.
In the forex market, there are traders of all levels of proficiency, and each type of trader will have different ways of working.
Eager to learn more about how to trade forex? If you have any questions about our forex trading platform or training courses, demo, live trading sessions, or others; our customer service team is ready to address all your questions.