Forex trading for beginners - Complete guide 2023

Forex is a portmanteau of foreign and exchange and refers to the trading of international currencies – usually via derivatives. As noted above, the forex market is extremely popular amongst traders – in fact, in terms of trading volume, it is the world’s most liquid market. Unlike the financial indexes, the forex market operates beyond traditional business hours – 24 hours a day, five days a week. 

Once the preserve of governments, hedge funds and large corporations, forex trading is now open to all, with hundreds of retail brokers and exchanges allowing individuals to trade from the comfort of their own home. 

You can improve your chances of success in forex trading by learning the key fundamentals before you get started. Many people are deterred by trading as it often seems unduly complex, but by learning the various market terms and mechanics in manageable chunks, things will soon start to make more sense. So what are the key things to be aware of when trading forex?

Forex pairs

Currencies are usually traded in pairs, so when you are looking at a trading platform you’ll see two currencies side by side: USD/EUR, EUR/CAD, USD/JPY and suchlike. There will also be a price quoted for each pair, which is a quote for the exchange rate. 

For example, if you see EUR/USD quoted at 1.3500, it would mean that is the amount of USD required to purchase a single EUR – the currency listed on the left is always the buy, whilst that on the right is the sell.  If that price goes up to, say 1.400, it means the USD would have increased in value against the EUR. It is this movement that traders aim to profit from when trading forex pairs. 

Forex lots

When you trade forex, you generally do so by lots. In a nutshell, this is a unit of standardised measurement to indicate the trade size. How much you pay per lot will depend on your exchange and their fee/spread structure, but the idea is that you have a single measurement system for transaction size.

You’ll see forex lot size referred to as either standard, mini, micro and nano. A micro lot is 1,000 units of a given currency, a mini lot is 10,000, and a standard lot is 100,000. Usually, a broker will have limits on how much – or how little – you can trade in a single transaction. 

Trading forex involves speculating on the price differences between the currencies of different countries and jurisdictions. Numerous factors affect the value of a currency, most of which are related to the economy of the country in question. Of course, it would be unfeasible for traders to understand and monitor the politics and economics of the countries behind all the currencies they deal with when making trades that in some cases are open for just a few minutes.

So how do traders inform their price predictions? The answer lies in price action. Rather than monitoring industry news, as is the case with longer-term investments, such as stocks, most forex traders rely on recent and actual price movements of an asset – forex, in this case – to read the market. 

If you’ve ever seen a trading platform, then you might be familiar with some of the tools traders use to analyse price data. Tools for technical analysis include numerous charts, price bands and other information and traders scrutinise these to identify volatility and breakouts.

However, don’t be alarmed if this all sounds rather complicated. Thanks to modern AI and trading algorithms, trading is more accessible than ever before and once you get familiar with your trading window, you’ll start to learn how to use these tools to your advantage. 

By this stage in our forex trading for beginners, you’ve probably realised that you need a broker to actually facilitate transactions and allow you to enter the market. Fortunately, there are numerous operators on the market, but be warned: some are definitely better than others. So how do you choose a good broker?

Regulation

The first thing to do is ensure that any broker or exchange you are thinking about opening an account with has all the necessary regulatory credentials. Whilst there is no regulatory body to oversee all forex trading, you should check that any platform you use is affiliated with the financial regulator of your jurisdiction. In the UK, for example, this would be the Financial Conduct Authority, whilst the Malta Financial Services Authority is an important body for European traders. You also need to ensure your chosen broker has the necessary financial safeguards for client funds – which must be stored separately from any funds relating to the business itself. 

Licensing

Licensing and regulatory credentials are, of course, prerequisites. Having made sure these are in place, the next thing to do is to make sure the broker you are interested in provides adequate trading services for your chosen market – it’s worth noting that some brokers list more forex pairs than others, so you’ll want to check that the currencies you want to focus on are listed.

Once the necessary credentials have been identified, then choosing a broker really comes down to a question of personal preference. Many brokers will use the same trading platform, so there is often very little difference with what you see on screen when opening positions. However, you might be someone who values trading on the go, so need a broker that has a reliable mobile app.

Alternatively, if you are a new trader you might want to choose a provider that provides learning resources and how-to guides, or one that has a good level of customer support, should you encounter difficulties.

There are no guarantees in the world of trading – even top-level professionals lose on some trades. However, there are steps you can take to give yourself the best chance of long-term success. With this in mind, what follows are 5 tips that we at nextmarkets think will help you make the best start in your trading journey.

1: Have a plan

Before you make your first trade, you should develop a trading plan. Initially, this doesn’t need to include any particular strategy, but at the very least you should have set yourself a budget and trading schedule. Trading is all about keeping a level head – having a plan in place helps to keep you from acting rashly or committing more funds than you intended to. Once you have some experience, you can then start to research strategies and techniques to build a more complex plan. 

2: Never stop learning

As noted above, trading can be seen as a journey – and one that is ongoing. The market changes quickly, with new technology, strategies and trading options being developed all the time. As a new trader, there is a lot to learn, but you’ll need to make sure you keep your finger on the pulse and seek to constantly refresh your knowledge and skill set. Always be continuing your forex trading education. 

3: Keep up to date with the news

Make sure you identify several reliable market news sources. Keeping abreast of developments is essential and will help you make sure you are using the latest strategies. More often than not, your broker will offer plenty of information on everything happening in the world of finance. In fact, you can even look into trading the news – a term used to describe making investments and trades specifically based on news releases. 

4: Use a practice account

The top brokers on the market should offer the chance to try them out with a demo account. These usually involve using virtual funds to trade in real-time and are an invaluable resource. Learning how to trade forex for beginners can have a steep learning curve and a practice account allows you to get to grips with the markets without risking real funds. This is the time to make those rookie errors – when the stakes are low. 

5: Don’t get carried away

Successful trading is about keeping a cool head. Novice traders often find that strategies they have tried out using practice accounts are less successful when entering the market for real and, more often than not, this is due to them making rash decisions. For example, losing their nerve and closing a position too early if they start to see slight downward movement. Once again, this is where having a plan is crucial. Of course, it’s also important never to commit more funds than you intended. The golden rule is to never try and chase losses. If a trade doesn’t go your way, don’t let it upset the rest of your strategy and risk losing more funds by taking unnecessary risks. 

Strategies are important to be aware of – even in a forex trading guide for beginners. Ultimately, any trading is about winning more than you lose and having a strategy in place is one of the most tried and tested ways of giving you the best chance of success. So what are some of the most common forex trading strategies?

Day trading

As the name suggests, day trading involves opening and closing a position within a single day.  The idea is that traders profit from small fluctuations in the price of currencies to build profits. Day trading is, however, a volume game – traders usually make multiple transactions per day and use leverage to maximise their returns. They rely on up-to-the-minute technical analysis to identify trends and positions can be open for anywhere between a few minutes and several hours. You can find out more about this technique in our guide to day trading for beginners. 

Scalping

This is an intense form of short-term trading wherein traders will only hold positions for minutes at a time – seconds even. As with day trading, scalpers seek to profit from small, short-term price movements and generally trade in high volumes. Due to the nature of scalping, traders will often use leverage to maximise their market exposure and make all those small transactions worthwhile. This is generally not a strategy for beginners but is worth being aware of as you gain more experience and get to know your own preferred trading style. 

Position trading

Position trading differs from scalping and day trading and is often preferred by part-time traders who can’t dedicate huge amounts of time to the market. Position traders hold positions over a longer period – perhaps even months. The idea with position trading is to identify longer, more sustained price trends and usually involves making fewer, larger investments than with day trading or scalping. Naturally, position trading requires a great deal of research and traders must monitor the financial landscape closely whilst their trade is open.  

Swing trading

Finally, swing trading falls somewhere between day trading and position trading. Swing traders usually hold positions for anywhere between a few days and a week or two. The advantage of swing trading is that there is not the need to constantly monitor the price charts, so it’s a good option for those who have other commitments. Once again, careful research is required and whilst you may not need to watch the charts hour by hour, you will need to keep a close eye on your position throughout its duration. 

All of the strategies detailed above have their place, but novice traders are advised to choose one that best fits their individual circumstances, before branching out later if they so choose.

If you’re learning how to trade currencies, then you’ll probably have a few questions about the industry and how everything works. This is only natural – as with any financial market, there is plenty to learn about forex. Luckily, help is at hand and here at nextmarkets we have all the information you need to get started. What follows is a selection of commonly asked questions about the world of forex trading.

Is forex trading for me?

Forex trading is hugely popular these days and it seems more and more people who have never invested before are getting involved. The great thing about forex trading is how accessible it is. If we compare forex vs stocks, for example, then the advantages become clear. Whereas investing in the stock market often requires a specialist account in addition to brokerage services through a traditional financial institution, a forex trading account can be opened online in just a few minutes. So if you are looking for a fast and hassle-free way of kicking off your trading career, forex could be the perfect answer. 

Where do I find a forex broker?

Choosing the right forex broker is an important decision and one that you should invest plenty of time and research in. We have detailed a few of the prerequisites above, but you also need to make sure a broker fits with what you are looking for – i.e that it has adequate customer support, a trading platform you can get along with and plenty of information and learning resources. There are plenty of comparison sites out there allowing you to check the credentials of one operator against another. One of the best ways to decide on the right broker for you is by opening a demo account to try out an operator and see if it’s a good fit for you. 

How can I learn about forex trading strategies?

It is important to have a strategy in place when trading any financial asset. This can be anything from a basic budget and schedule, to a complex Fibonacci strategy learned from the pros. Of course, you’ll need to fully understand any strategy before attempting to implement it, so we recommend checking out one of our trading strategy guides to familiarise yourself with some common approaches to forex trading. 

What costs are involved in trading forex?

There will always be fees involved in forex trading, but these will vary from broker to broker as well as depend on the size of transaction being made. Typically, brokers will either charge a set commission – often a percentage of the value of the trade – or make a profit from having a wider spread. The best way to find out exactly what you will be paying is by checking with the broker’s terms and conditions. You should also check the fees involved upon making any particular trade and account for it in your budgeting plan. 

What is leverage?

Using leverage effectively means borrowing funds from your broker. The idea is that by doing so, you get more market exposure without increasing your own outlay. Traders use leverage to maximise the returns on an investment and it is especially common in day trading, where traders make frequent, smaller transactions. However, just as trading with leverage can boost profits, it can also amplify losses. Beginner traders should approach leverage with caution and ensure they know exactly what’s involved before opening a leveraged position. 

Forex trading is an exciting and potentially lucrative way to get involved in the financial markets. With high liquidity and easy access, all you need to get involved is a web-enabled device and an internet connection. Whether you plan to get involved as a way to supplement your existing income or have designs on making it as a full-time professional trader, hopefully our guide to forex trading for beginners has given you an idea of how to get started. 

Always remember that forex trading is not a get-rich-quick scheme. It is a skill that takes time to acquire and, as with any form of financial investment, there are inherent risks. However, by starting out with an open mind and taking the time to adequately prepare, then you give yourself every chance of success in your forex trading journey.