Our resident team of experts, always having your interest in mind, has put together this concise, essential guide on how to trade forex, especially geared towards beginner traders, with no previous knowledge of or experience in the world of online, retail, forex training.
Against the current gloomy backdrop, where the word is struggling to cope with the pandemic and most importantly its economic repercussions, where national economies enter recession, unemployment is rising and demand is falling, the forex market is an exception, having, since the beginning of the COVID-19 adventure, recorded over 300% increase in trading transactions worldwide.
Though remarkable, this development is hardly surprising as being under lock down, having lost their permanent job, or seen their incomes and salaries decrease suddenly, has spurred many people to try out their hand with online retail forex trading, entering the wonderful world of exchanging foreign currencies in pursuit of an extra source of income, or in hope that trading earnings will improve their standard of living.
Many of these folks are absolute beginners in trading and it is for those that this present post is geared. And though, to many, riding the forex market bandwagon seems a mysterious riddle, the truth is that once you grasp its gist and get the hang of it, achieving profits is very doable.
Of course, you cannot become a pro, master trader in days, but if you are willing to put in some work and effort and you find the appropriate platform to trade through, you can learn the basics and start your money-making effort fairly fast.
As already mentioned, the forex market is currently booming and so is its online retail branch, meaning that literally new forex brokers enter the scene and seek your custom every single day. This fact renders the pursuit of finding the best forex broker for you, especially if you are a novice trader, a rather complex process which does require some time, research and patience. To save you some time and better direct your research, our team has identified and presents below the key virtues you should look out for in a forex broker, as well as the top issues to consider prior to opening your first forex trading account.
The first merit a forex broker should have to earn your preference as a beginner trader, is being a well-established, reputable and trusted brand that offers you a user-friendly platform and overall trading environment, while the second must-have to better serve beginner traders is an abundance of high quality educational resources, that are easily accessible and offered free of charge, backed by access to quality market research that will help shape your own approach, preferences and trading style.
Prior to becoming a forex trader though, there are a few basics that you need to understand first.
The overall forex market is without a doubt the largest global market, recording currency transactions of over $6 trillion on average each day! Short of foreign exchange and as implied by its name, forex trading then is the trading, i.e. the buying or selling of currency pairs, hence the term exchange, as in each transaction you are exchanging one currency for another. This trading is based on the prevailing exchange rates of the traded currencies from the forex market.
Approximately 85% of all forex trades take place across the seven most popular currency pairs, which are known as the “Majors”. These seven most traded currency combinations are, as would be expected, composed of the currency of the main, advanced, nations and economies in the world, such as the USA, the EU, the UK, Japan, Canada etc. Namely, the most frequently traded pairs in forex are the: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD, and USD/CAD.
Prior to venturing out on a forex trading spree you should be aware that forex trading carries an inherent risk and that most traders do not manage to make a fortune out of trading. This being said, and though forex trading is not a bullet proof method to make huge profits, many do manage to get rich through it. Forex trading has indeed made fortunes for several hedge fund managers, such as George Soros who back in 1992 made over one billion pounds, through selling the GBP short. Richness is thus doable, but more elusive, however supplementing your income, provided you trade wisely and avoid risking funds you cannot afford to lose, is perfectly possible and plausible.
As a novice trader your first consideration should be to practice and learn how everything goes and works before risking any real funds. This practice is made possible by opening a forex demo account, which is offered by most forex brokers, allowing you to learn how the trading platform works and how to use its tools and features. You also need to watch webinars and read up on the basics of trading and fundamental and technical analysis, as wise traders are always more successful than their ignorant counterparts. When you feel adequately in the know and confident enough you can open a live account, fund it and start your real trading efforts.
A forex or currency trading broker is a company which acts as the intermediary between the global currency market and individuals wishing to engage in the online retail trading of currency pairs. In fact, brokers are those who gave access to common folks, who could not have entered this lucrative market had it not been for the brokerages providing them with a legal, direct access to the markets, as well as a trading platform and other useful tools and resources to facilitate your trading experience and endeavours. Brokers are usually very accommodating towards their traders/clients as they make their money by charging you commissions on each trade place. Therefore, the more you trade the more they earn and it is thus at their best interest to keep you trading and facilitate your trading experience the best they can.
Beginner forex traders often make mistakes that cost them much money without fully comprehending why this occurs. This is why beginner brokers need to be extremely cautious and take active measures for their protection against losses. Besides learning the basics of trading and practising their skills and tactics through a demo account before proceeding to open a live account and funding it, perhaps the most crucial decision they are called to make is choosing the right broker to trade through, that best suits their particular needs as beginner traders.
The importance of picking the right broker for a beginner trader, against the backdrop of the hustle, bustle and noise of the crowd forex brokers’ landscape, cannot be stressed enough, but can be rather tedious and confusing. Therefore, to help beginner traders choose a good and reliable broker, that will further facilitate their trading endeavour and maximise their chances for success, here are the main questions to ask yourself as a beginner, to help you make the most suitable broker choice:
Since you will be trusting your broker with your money, it is imperative to ensure that this broker is worthy of such trust. Therefore, you need to scrutinize your prospective broker’s overall presence in the industry, its track record, reputation and credibility. Scams and scam brokers are a real danger and novice traders are especially vulnerable and susceptible to this risk. One way to feel safer and protected is to choose brokers that are regulated by the official government watchdogs in each jurisdiction, since regulation forces regulated brokers to operate more transparently and fairly, while industry watchdogs strive to protect the interests and rights of investors. This being said, regulation alone is not enough, while you should not write-off all unregulated brokers as an option, because lack of regulation does not always imply something sinister.
As a beginner trader, who is unaccustomed to the how’s of trading, you need your overall trading activity to be as stressful and smooth as possible. This is why you should seek brokers with clean, uncluttered, simple and user-friendly trading platforms and interfaces. Platform reliability and the timely execution of transactions and trades is also a must-have and you will need to factor these in as well. Equally important for beginner traders in terms of the broker’s trading platform is the availability of trading tools that help traders better analyse the markets and make wise trading decisions. Such useful tools include charts, streaming news and an economic calendar highlight important upcoming events or announcements that will impact the markets.
To maximize your profits and minimize your risks as a trader you should look for brokers who charge you low fees for every trade you make. Make sure you are aware whether the broker is compensated through a commission, that is a fixed amount per lot traded, or via a markup on the spread, i.e. the difference between the bid and ask price. Also ensure that you are fully aware of any other fee types associated with your trading activity, such as an inactivity fee in case your account remains inactive, or withdrawal fees for when transferring funds out of your trading account. Compare the charges imposed by brokers and opt for those with the most competitive pricing and fees policy.
Since it is to the broker’s interest for their trader/clients to keep trading as the more the trading volume the more the money making for brokers, most brokers provide educational materials for traders of all levels of experience and expertise to help them trade more effectively and retain their custom for the long term. Especially for newbies in trading, being able to benefit from extensive and comprehensive educational and training opportunities on things trading-related is massively important and useful. Such materials may come in the form of e-books, webinars, videos and even structured courses containing useful knowledge all through from the beginner’s level to expert, pro trading.
All leading forex brokers offer their clients a selection of several types of trading accounts, which are usually differentiated by the benefits offered to the account holder, as well as their requirements, for example the minimum deposit requirement they carry. Usually brokers have account types which are specifically crafted for beginner traders and come with a higher leverage level, but also with higher spreads and often restrictions on the currency pairs available for trading. When seeking to find the most suitable forex broker for beginners take a note to choose one that has several account types on offer and verify which account type and its associated perks better serves you and suits your own particular needs.
The deposit and withdrawal methods supported by each broker is another facet to take into account when comparing between forex brokers, to discern the best one for beginners. There is no industry wide standard and each broker has their own policies with regards to the handling of deposits and withdrawals, mostly pertaining to the minimum and maximum amounts accepted or demanded, as well as the payment methods allowed. Novice traders should seek brokers which provide them with convenient and cheap ways to fund their accounts and withdraw their earnings.
The forex trading journey is often not a smooth one, as often technical difficulties may arise, while traders may face hidden fees, delays and other sorts of problems. Whenever a trader encounters any kind of difficulty, they should be able to get in touch with their broker and seek help and assistance or an appropriate remedy. Thus highlights the importance of excellent levels of customer service and support, especially for novice, inexperienced traders. Such customer support should be prompt and responsive and provide tangible help in a polite manner, preferably in the trader’s native language. It is therefore important to seek brokers that score high in terms of customer support and it pays to find out what other customers have to say about this. Ideally, help should be available on a 24/7 basis and include several contact options, including live chat, localized or toll free phone numbers and email, to offer traders further convenience.
If you are completely new to the world of forex it is natural to have worries and concerns when thinking to start your trading endeavour. However, as with most things, when trying the piecemeal approach, the tasks at hand become more manageable and the whole picture becomes clearer and less daunting. Let us then break up the initial process into small steps to ease your way into the wonderful and promising world of forex:
Don’t attempt to start trading unless you first learn and understand how forex trading works. Use the internet to read up, watch tutorials and take full advantage of the educational resources offered by forex brokers. Familiarize yourself with how markets work and also learn the relevant terminology and basic principles of analysis. Also learn how to effectively use a trading platform and test your knowledge through a demo account, so that no real money would be at risk.
Just as practice makes perfect, in the world of online, retail forex trading, so is planning too. As a novice retail trader, you need to identify or devise a plan with regards to your trading goals, style, preferred markets, preferred currency pairs etc. Your chances of getting it right and achieving profit will increase if you have a specific, clear plan in mind, e.g. to trade USD and GBP, as this will allow you specifically focus on following and remaining up to date with news and developments which directly impact and affect the prices of these two specific fiat currencies.
Such a thing as a perfect forex broker may not exist, however your task when choosing a forex broker as a novice trader should be to opt for that forex brokerage which is better suited to your own individual needs, requirements, preferences and aspirations as a trader. Ideally, if you have a specific currency pair in your plan, then check out that prospective brokers offer that pair and also that they charge a low commission on the assets and trading types that interest you.
To increase your chances for trading success you also need to get used to how the broker’s platform works, as being familiar with how to place trades fast and what additional tools and features you have at your disposal, will sure make you a better trader and lead you to conclude winning trades and transactions. As mentioned already, figure it all out on a demo account first and then move on to a real, funded trading account.
Once you feel confident enough to start risking real money, remember that live trading is different to trading in demo mode and that you are likely to fail in your initial trades, as the pressure and excitement of the real thing is much different than when trading in the stress-free, secure environment of a demo account. The trick is not to panic at the first adversity and act irrationally, but rather move prudently, rationally and consciously, keeping your cool and sticking to your tactic and plan. Through iteration you are bound to nail it and start achieving profits. What you need to remember is that markets are volatile and keep changing and in order to succeed you need to be alert, keep up and able to change and adapt accordingly too.
To sum it all up, here’s what smart, beginner forex traders should be on the lookout for:
Check and verify a broker’s regulatory status, which jurisdictions they are licensed to operate in as many are regulated in more than one jurisdictions, as well as their credibility, transparency and overall presence and reputation.
Evaluate the trading platform, with the view that the more choices the better it is for you as a trader. Ensure a broker offers mobile trading enabling one to trade on the go and always form a hands-on opinion, by opening and using a demo account, to evaluate the performance of a trading platform under real life conditions.
Have a clear understanding of the trading costs and check if any rebates are on offer on the commissions payable, as often many brokers reward loyalty through such rebate schemes. Remember that the more you trade the more a broker earns, so check if you can get something in return for your custom.
Be sure what the withdrawals policy is and if any restrictions or specific requirements apply pertaining to the minimum and maximum withdrawal amounts, as well as any fees charged.
Evaluate the customer support offered on its effectiveness and quality, but also on how easily available it is, as especially as a novice trader being able to get support whenever you need it is of paramount importance.
Place particular importance on the educational and training material and resources offered by each broker as learning opportunities are vital for novice traders, before assuming the risks of trading.
Check out any additional, value-added services to be had, as many brokers try to stand out by expanding their offering and providing useful extras, such as for example free trading signals or other tools which aid beginner traders to trade better.
Especially when you are a beginner in the world of forex trading, discerning which would be the best forex broker for you to start trading through is indeed a big deal and a challenging task, as you lack the necessary trading knowledge to be able to know what to be looking for in the first place, and what to be actively seeking from your prospective forex broker. This present post is a concise attempt to help you navigate the jungle. We also recommend that you consult our myth-busting, popular and enlightening recent post on finding the best forex broker, as well as regularly visiting our blog section, as it is regularly updated with useful content geared at helping all traders, old and new, fulfil their potential, reach their trading goals and meet with trading success and profits.
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