As with any kind of ﬁnancial market trading, you need to be able to answer the following question: How Can I Compete against the Pros and Big Institutions as a forex beginner?
If you're looking to get started in forex trading, this is the place to start. The following article will help you learn everything you need to know about forex trading for beginners.
Whenever you are trading forex and any other financial market, most of your competition consists of the top professionals who are responsible for most of the trading volume. They have nearly every advantage over you: skill, experience, and any advantage that money can buy, the best equipment, information sources, industry insider contacts, whatever. You have no better chance of beating someone like David Woo or Stephen Jen at short-term forex trading than you do at beating Michael Jordan or Lebron James at basketball. So how can you compete as a forex beginner? You don’t. The real answer obviously is, don’t even try to understand how to trade forex as they do.
That’s ﬁne; there’s plenty of money to be made if you know the secret, which is really no secret. It’s just common sense. In the beginning, don’t try to be a bad imitation of an experienced pro. Instead, focus on becoming a great forex beginner. That means ﬁnding and using the trading techniques, styles, and instruments that even a forex beginner can, in measured stages, start to implement successfully. You’ll spend most of your time calmly and persistently searching the charts for those few easier opportunities, rather than spending long hours glued to your computer, frenetically making lots of trades based on rash decisions, based on short timeframes in which price movements are harder to predict, with the odds ﬁrmly against you. How do you identify and execute these simple, low-risk, high-yield trades? Funny you should ask. The following is forex for beginners' guide of how we’ll do it.
Continue reading for more information or experience forex trading for beginners with a FREE $20 welcome bonus. Use code WELCOME20 at registration.
As I’ve said before, you have to start forex trading somewhere. Welcome to the somewhere. We’ll teach a variety of ways to harness the power of the forex market that are safer, simpler, and more likely to be proﬁtable than the higher-risk methods most commonly practiced.
Regardless of your skill level or risk tolerance, there are solutions here to suit you. A prime focus of this blog is to be a forex trading for beginners road map for ﬁnding, planning, and executing trades that are safe and simple enough for beginner to intermediate skill levels. More speciﬁcally:
We will show you how to be a disciplined trader, focused on proﬁts, not gambling. This includes doing something you’ll rarely see in forex for beginners' guides. We will NOT encourage you to trade short-term intraday moves in which you enter and exit within a matter of minutes or hours.
We will coach you to manage risk so you can be proﬁtable even when most of your trades lose money. That means:
What’s the Catch? There is a catch: Forex trading requires time and effort as with any other competitive, lucrative ﬁeld. In previous articles about forex managed accounts and copy trade systems we’ve explained to you some approaches that are easier than the usual forex trading for beginners strategies, but even these require study and practice. Like achieving anything else worthwhile, especially a lucrative, stimulating career, you’ll need the discipline for a sustained investment of time, effort, and money. You’ll suffer some uncertainty, frustration, and failure, with no guarantee of success, as you would in achieving anything else worth attaining. Sorry if we’re bursting anyone’s bubble. Fortunately, you’ve got the right forex for beginners' tools to minimize the drain on your time, emotions, and ﬁnances.
While we’re trashing get-rich-quick illusions, here’s a helping of fear to keep you motivated and paying attention. In case you forgot (or skipped) what the fact is this: Per available data, the odds are ﬁrmly against you. Most forex beginners lose money and are gone within a matter of months. U.S. regulators have reported that the vast majority (around 80 percent or more) of forex beginners fail within their ﬁrst two years. Few manage to last at day trading in general. At least one large publicly traded forex brokerage reports that a large percentage of its traders are proﬁtable, and that’s because most of the forex beginners copy the success of the leading traders. Many take a rather simplistic view that because most beginner traders fail, forex trading should be avoided altogether by amateur traders or investors. By that same reasoning, one should avoid real estate and insurance sales and any other ﬁeld that offers low barriers to entry is potentially lucrative and attracts intense competition from which only a minority prosper.
Consider that one cannot even begin to practice in most lucrative, skilled professions without years of professional training, typically costing over $100,000 intuition, related expenses, and lost wages. After that, there’s a demanding battery of exams, followed by years of relatively low paying jobs with grueling hours, commuting, ofﬁce politics, and ass-kissing thrown in as you learn how the job is done.
Even after passing through all those hoops, only a minority will make the big money. From our own experience working in large accounting ﬁrms, we’d be surprised if 10 percent of the new hires out of college eventually become partners or ﬁnd equally lucrative roles in the ﬁeld. Having worked with traders for years in various capacities, it’s clear that most traders don’t do the preparation needed to have even a chance to succeed. The small minority that attempts a serious program of study and practice enjoy a lucrative part-time or full-time career as forex traders, forex money-managers (manage investor's funds and earn additional income from trades or profit), forex signal-providers (offer signals and receive a fixed monthly income from subscribers) or introducing-brokers (work on behalf of a broker and earn money every month for successful referrals)
We wrote this article for those like you, the sincere, serious traders or investors who seek the path to better results. Here is the good news:
Even if in the end forex trading isn’t for you, you’ll have learned valuable ways to proﬁt from forex as a long-term investor, money manager or forex introducing-broker. In sum, we can’t guarantee you success, but we can make you better, and put you miles ahead of the rest of the forex trading beginners out there.
Though most currencies are convertible and tradable, the first aspect you have to learn about forex trading for beginners is that most traders stick to the eight major currencies (known as majors), because they have the most liquidity or availability, meaning that lots of buyers and sellers are usually present at any given time. That means you’re likely to get the best price and avoid slippage. For example, if you want to buy or sell something, you’ll get a better price if thousands of counterparties are competing for what you have to offer, as opposed to just one or two.
Here are the eight major currencies, along with their symbols and nicknames, ranked in order of liquidity:
Currency Labels Explained:
Why these symbols? In general, the ﬁrst two letters stand for the country, and the last letter signiﬁes the currency.
To be able to learn forex trading basics, always remember that depending on how they behave, these major currencies are classiﬁed as one of two kinds: risk and safety or safe-haven currencies. For now, just know that in general:
Here’s an image showing how these currencies rank on the risk-to-safety spectrum:
In other words, the AUD is the currency that tends to raise the most when markets feel optimistic and want risk assets, and the JPY tends to fall the most. In times of fear, when risk assets are selling off, the opposite occurs.
These labels refer solely to how these currencies behave relative to other assets. These categories do NOT refer to the safety of these currencies as a store of value. For example, the JPY generally behaves as the ultimate safety currency, however, few would dispute that the CAD is a better long term store of value given Canada’s better ﬁscal health. While the above general ranking works over a given period of days or weeks, it rarely applies perfectly on a daily basis.
For example, even if markets are feeling very optimistic, and classic risk barometers like the S&P 500 are trending higher, currency speciﬁc news events can cause lower-ranked risk currencies to outperform the AUD and NZD.
Like everything else, currencies need to be priced in a currency, so currencies always trade in pairs. This fact makes the forex market different from other markets in two critical ways.
Here’s the ﬁrst big difference. Thus, unlike how traditional asset markets price stocks or commodities in terms of a given currency, foreign exchange (forex) prices are the product of the movement of one currency relative to another. For example, when traders talk about the price of the U.S. dollars (USD), they’re referring to the dollar value relative to another currency, depending on which pair they’re considering. This is a critical difference from other asset markets.
For example, on a given stock exchange, traders need only consider how share prices change relative to the local currency, which is assumed to have an essentially ﬁxed value regardless of what’s actually happening in the forex market. However, forex traders must consider how a currency will move relative to multiple currencies, all of which are moving at the same time. For example, it’s common for a given currency to be up versus some currencies but down versus others. That often complicates an assessment of its overall strength and is not something to learn in forex for beginners.
For now, just learn this forex for beginners basic principle: if traders want to beneﬁt from the USD’s strength the most over a given period, they must also choose the currency against which it will be strongest during the anticipated time span of the trade, be it an hour, year, or anything in between. Even when the New Zealand Dolar (NZD) is relatively weak, if the USD is doing even worse, you can still proﬁt from buying the NZDUSD.
This is such a huge advantage over other markets such as stocks that it alone justiﬁes learning to trade forex because forex trading gives you an easier, more reliable way to play bear markets.
In other markets, there are often technical rules that make it harder to proﬁt from downtrends. These include the periodic outright bans on short selling (typically when that’s most proﬁtable), and the Uptick Rule, which often prevents less sophisticated traders from catching the most proﬁtable sharp downtrends, and keeps them away until the trend is moving higher, thus making short selling riskier. When you short stocks, your broker must borrow shares from someone who owns them. These aren’t always available when you want them, because other short-sellers want to borrow them too. However, such bans are impossible in currency markets, because currencies trade in pairs, which means you’re always selling one in order to buy the other, that is, shorting (selling) one and going long (buying) the other. Some currencies (safe-haven currencies) rise in times of pessimism or bear markets; others (risk currencies) rise in times of optimism or bull markets.
Proﬁting from bear markets is just a matter of buying safe-haven currencies and selling risk currencies to pay for them. In bull markets, you do just the opposite. Unlike speciﬁc stock exchanges, currency markets are too international and interlocked for anyone to ban selling a given currency at a given price. Even central banks’ attempts at manipulating prices are rarely sustainable for long. Confused? Stay with us here—the details of how we’re always buying one currency and selling another, and how we proﬁt from bear as well as bull markets, will be clariﬁed further on when we learn the anatomy of a forex pair price quote and better understand what actually happens in a forex trade.
Read the pair as the Euro-U.S. Dollar or the Euro-Dollar. The currency on the left, the EUR, is called the base currency. That’s because price movements of the EURUSD are “based” on the base currency. The EURUSD price will rise on the charts if the EUR is rising versus the USD. In other words, when this pair is trending higher, it means the EUR is rising versus the USD (and vice versa, the USD is falling versus the EUR). When the EURUSD is falling, that means the EUR is falling versus the USD, and the USD is rising versus the EUR.
Thus, when you think the base currency will rise versus the counter currency, you buy or “go long” the pair.
The currency on the right, in this case, the USD, is usually called the counter currency because the price of the pair moves “counter” to the value of the USD versus the EUR. That is, if the EURUSD is rising, the value of the USD relative to the EUR is falling. The currency on the right is also called the quote or terms currency because price movements of the EURUSD are “quoted” in “terms” of the USD. Price is read as counter currency per base currency. In other words, do not read the pair like a fraction. Instead, were ad the EURUSD price as U.S.Dollars per Euro and not Euros per Dollar. For example, if the EURUSD price is 1.1131, that means the price or exchange rate is 1.1131 USD per EUR, or, the EUR costs 1.1131 USD.
The above price quote means you could do one of the following:
That means: You buy Euros and pay for them to buy selling dollars, paying the higher ask price. For every 1 EUR you buy, you’re selling $1.1132 USD, regardless of whether your account is funded with JPY, GBP, EUR, and so on. Amounts are converted as needed.
That means: You sell Euros and get U.S. dollars in exchange for them at the lower sell or bid price. For every 1 EUR you sell, you’re being paid $1.1131 USD.
In sum, if you want to learn the basics of forex trading, understand this: you’re always buying at the higher price and selling at the lower price so that the forex broker can earn the spread in lieu of fees or commissions. When you buy or go long the EURUSD, you’re long the base currency EUR and you’re short the USD. When you sell the pair, you’re doing the opposite. Thus, you’re always long one currency and short the other, so it’s as easy to short one currency versus another and, thus, beneﬁt from its downtrend as it is to be long that same pair. When you enter or exit a position you buy at the higher ask price, and sell at the lower bid price. Why? The difference or spread between the bid and ask prices is the proﬁt the market maker or broker earns for pairing buyers and sellers instead of charging a commission like stock brokers.
Understanding forex trading for beginners is important, but if you want some help, sign up and a dedicated trainer will provide you step-by-step guidance to get started. Start trading and experience the best of forex for beginners. Use code WELCOME20 at registration.