How to Trade Forex - Step by Step Guide to Get Started

Making a forex trade — especially that first time you become a bona fide part owner of a business — deserves its own celebratory ritual. But before we pick out the party hats and rent a ticker tape confetti cannon, let’s review how to trade forex online.

How to trade Forex - The 4 steps

Wondering how to trade forex? Movies love to show frenzied traders shouting orders on the floor of the New York Stock Exchange, but these days very few forex trades happen this way. Follow these four steps to learn how to trade forex.

Step 1 - Open a Forex Trading Account

Today, the easiest option is to trade forex online through a brokerage.

Opening a forex trading account is as easy as setting up a bank account: You complete an account application, provide proof of identification and choose how you want to fund the account. You may fund your account by transferring funds electronically via popular payment providers like Skrill, Nettler or ZotaPay. (We have a step-by-step guide to opening a brokerage account here.)

How do you find a forex broker that’s worthy of your dough? It’s not just about finding the one with the cheapest trading spreads and commissions. Paying a few forex pips more per trade at a brokerage that provides high-quality customer service and support is worth it, especially when you’re new to forex trading in Kenya.

Some other things to consider:

  • How much money you have. Many online forex brokers have a $0 minimum requirement to set up a standard retail account. For a regular brokerage account, the minimums can range from $0 to $1,000 or more.
  • How frequently you plan to trade. At most forex brokers suitable for new investors, spreads run between 0.5 and 1.0 pip for EurUsd and other major forex pairs, while for cross-pairs are double or triple. The commission should be always 0 with an ECN broker. Low trading costs will be more important to scalpers and day traders, those who place a few trades per day. Long term traders should steer clear of brokers that charge inactivity fees.
  • How much support you want. Consider the broker’s offerings of educational tools, money management, robo-advisor, proprietary research and access to real, live humans via phone, email, online chat or branch offices. To compare your brokerage options, simply use AM Broker offerings here.

>> See a Forex Trading Accounts Comparison Table

Continue reading for more information or learn how to trade forex in real market conditions. Use code WELCOME20 at registration to get a FREE $20 welcome bonus.


Step 2 - Select your forex pairs

Once you’ve set up and funded your forex account, it’s time to dive into the business of picking trades. A good place to start is by researching forex pairs with higher liquidity and lower volatility. 

The most heavily traded currency pairs in the world are associated with the US dollar and other major global currencies, including the Japanese yen (symbol: JPY), British pound (GBP), Australian dollar (AUD), New Zealand dollar (NZD), Euro (EUR), Swiss Franc (CHF) and the Canadian dollar (CAD). Therefore, the more commonly traded currencies are the EUR/USD, GBPUSD, AUD/USD, USD/CHF, NZD/USD, USD/JPY and USD/CAD.

There will be a price associated with the currency pair, and that price will constantly change. For example, if the price is 1.22501, that means it costs 1.22501 US to buy one euro. If the rate was 1.25250, then it costs 1.25250 US to buy one euro.

Your goal is to profit from the price change, though:

  • Buying low and selling high a currency pair anticipating that the base currency (the one on the left) will appreciate against the counter currency (the one on the right);
  • Selling high and buying low a pair anticipating that the base currency will depreciate against the counter currency.

In either case, the forex trader could earn an amount of money on the difference between the opening and closing price of the trade.

The amount of that profit/loss is determined by how much price moves in pips (the fourth decimal place in the price of a currency pair) and the position size (forex lots you buy or sell) that we will describe later.

Step 3 - Decide on position size

Forex pairs move in increments called pips. A pip is the fourth decimal place in the price of a currency pair. For example, in 1.2232, the fourth decimal place (2) is worth one pip. If the price moves up to 1.2233, that is a one pip move.

Currency pairs are often quoted to five pips. The fifth decimal place is a fraction of a pip. For example, if the price moves from 1.13415 to 1.13420, that represents a half pip (0.00005) move.

Pips matter because pip movements determine profits and losses. One of the major determinants of those profits and losses is the position size. Most forex brokers allow traders to trade in $1,000 increments (or other units of the currency, depending on the currency being traded).

If buying/selling 1,000 worth of the EUR/USD, one pip of movement will result in a $0.10 gain or loss. This is called the pip value. Buying/selling 10,0000 worth of the currency pair will result in a $1 gain or loss for each pip of movement. A 100,000 position means gaining or losing $10 per pip of movement. The forex pairs usually move around 100 pips per day.

1,000 units of currency is called a micro lot, 10,000 worth of currency is called a mini lot and 100,000 is called a standard lot. It is possible to trade in multiple lots, for example, a trader could sell seven micro lots, which means a pip of movement will result in a $0.70 gain/loss.

Remember that due to leverage, only 0.2% to 1% is needed in the trading account (margin) to control a large block of money. With 1:500 leverage offered by most of the brokers, one needs only 2$ to trade 0.1 lot or $200 to trade one standard lot.

>> Learn more about Forex Leverage and Margin - Their Relationship and Impact on Risk.

Step 4 - Choose your order type

Don’t be put off by all those numbers and nonsensical word combinations on the order page. Refer to this cheat sheet:

Basic stock trading terms

  • Ask 

For buyers: The price that sellers are willing to accept for the forex pair.

  • Bid

For sellers: The price that buyers are willing to pay for the forex pair.

The difference between the highest bid price and the lowest ask price.

  • Market order

A request to buy or sell a currency pair at the best available price.

  • Limit order

A request to buy or sell a currency pair at a specific price or better.

  • Stop (or stop-loss) order

Once a forex pair reaches a certain price, the “stop price” or “stop level”, a market order is executed and the entire order is filled at the prevailing price.

  • Stop-limit order 

When the stop price is reached, the trade turns into a limit order and is filled up to the point where specified price limits can be met.

There are a lot more fancy trading moves and complex order types. Don’t bother right now — or maybe ever. Forex traders have built successful careers relying solely on two order types: market orders and limit orders.

Market Orders 

With a market order, you’re indicating that you’ll buy or sell the forex pair at the best available current market price. Because a market order puts no price parameters on the trade, your order will be executed immediately and fully filled, unless you’re trying to buy a million lots and attempt a takeover coup.

Don’t be surprised if the price you pay — or receive if you’re selling — is not the exact price you were quoted just seconds before. Bid and ask prices fluctuate constantly throughout the day. That’s why a market order is best used when buying currency pairs that don’t experience wide price swings — liquid major pairs as opposed to exotic pairs.

Limit Orders 

limit order gives you more control over the price at which your trade is executed. If EurUsd  is trading at 1.1275 and you think a 1.1200 price is more in line with how you value the pair, your limit order tells your broker to hold tight and execute your order only when the ask price drops to that level. On the selling side, a limit order tells your broker to part with the pair once the bid rises to the level you set.

Limit orders are a good tool for traders buying and selling cross or exotic pairs, which tend to experience wider spreads, depending on investor activity. They’re also good for investing during periods of short-term market volatility experienced during economic calendar news released.

There are additional conditions you can place on a limit order to control how long the order will remain open. An “all or none” (AON) order will be executed only when all the shares you wish to trade are available at your price limit. A “good for day” (GFD) order will expire at the end of the trading day, even if the order has not been fully filled. A “good till canceled” (GTC) order remains in play until the customer pulls the plug or the order expires; that’s anywhere from 60 to 120 days or more.

Platform to trade Forex

Successful traders from around the world have chosen the MetaTrader 5 multi-asset platform for trading Forex, exchange instruments and futures. MT5 is an award-winning trading platform that puts you in charge, whether you are a long-term investor or actively trading global markets.

Client Terminal is a part of the online trading system. It is installed on the trader's computer and intended for:

  • receiving quotes and news in the online mode;
  • performing trade operations;
  • controlling and managing open positions and pending orders;
  • conducting technical analysis;
  • writing expert advisors, custom indicators, scripts, and functions in MetaQuotes Language 4/5 (MQL4/5);
  • testing and optimizing trading strategies.

For making a decision to trade, reliable on-line information is necessary. For that, quotes and news are delivered at the terminal in the real-time mode. On the basis of on-line delivered quotes, it is possible to analyze markets using technical indicators and line studies. Expert advisors allow working off the routine of observing markets and their own positions. Moreover, to ensure more flexible control over positions, several order types are built into the terminal.

The Client Terminal can operate under Microsoft Windows 7/8/10 or Mac OS.

For mobile platforms please visit our MetaTrader 4/5 for Android guide and MetaTrader 4/5 for the iOS guide.

We recommend the latest version, MT5 instead of MT4 which will wont be supported by MetaQuotes in the future (see MT4 vs MT5) and a compatible expert advisor builder that generates free and profitable Forex EAs or Forex Robots for MetaTrader 5.  

>> Download MetaTrader 5. 

Best Hours to Trade Forex

The optimal time to trade the forex (Foreign Exchange) market or the best forex market hours is when it's at its most active levels when trading spreads (the differences between bid prices and the ask prices) tend to narrow. In these situations, less money goes towards the market makers who facilitate currency trades, leaving more money for the buying and selling investors to personally pocket.

The trading week runs 5.5 days per week, 24 hours a day. It begins in Asia Sunday afternoon Eastern Standard Time (EST), or Sunday evening Greenwich Mean Time (GMT), and progresses each day until the close of trading in the United States as follows.

  • New Zealand trading is open from 2:00 P.M. to 11 P.M. EST starting Sunday.
  • Sydney is open from 5:00 P.M. to 2:00 A.M. EST. Tokyo is open from 7:00 P.M. to 4:00 A.M. EST.
  • Hong Kong and Singapore are open from 9 P.M. EST to 6 A.M. EST.
  • Frankfurt, Germany, the primary European market, is open from 2:00 A.M. to 11:00 A.M. EST.
  • London is open from 3:00 A.M. to 12:00 noon EST. London is the world’s largest forex trading center.
  • New York opens at 8:00 A.M. to 5:00 P.M. EST. NYC is the second-largest forex center.

Final words on how to trade Forex

We hope your first forex trade marks the beginning of a lifelong journey of successful trading. But if things turn difficult, remember that every investor — even Warren Buffett — goes through rough patches. The key to coming out ahead in the long term is to keep your perspective and concentrate on the things that you can control. Market gyrations aren’t among them. What you can do is:

Understanding how to trade forex is important, but if you want some help, sign-up and our trainers will provide you step-by-step guidance to get started. Use code WELCOME20 at registration to get a FREE $20 welcome bonus.

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Categories:  Forex