Introduction to Forex Trading - The Ultimate Guide

forex trading

If you’ve ever traveled internationally, you’ve touched on the world of forex trading, though you may not know it: When you stepped off the airplane, one of your first stops probably was to exchange your money for the local currency. Forex trading turns that little airport or ATM currency exchange into a sport.

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What is forex trading

When investors trade forex they’re buying and selling currencies over the foreign exchange market. It’s the largest financial market in the world but one in which many individual investors have never dabbled, in part because it’s highly speculative and complex. Actually, forex trading is arguably among the most rewarding asset classes for traders and investors.

If you’re looking for some better risk/adjusted potential, forex trading is the smart choice. Provided you know what you’re doing — please take those words to heart — forex trading can be lucrative, and it requires a limited initial investment.

Trading forex is different from stock trading in several ways:

  • Forex trades are made over the counter — through forex brokers or dealers — rather than through a central exchange holding monopoly power to regulate prices. 
  • The most flexible hours - because traders work across time zones, the forex program is 24 hours a day, five days a week.
  • Currencies are always traded in pairs, so it’s just as easy to profit in falling markets as in rising markets.
  • The availability of leverage in forex allows substantial profits on small price movements.


Because forex is traded in pairs, you’re always exchanging one currency for another — buying one, selling the other — just like you would at a currency exchange kiosk.

  • 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.

There are eight currencies known as the “majors,” or the most often traded: the euro (EUR), U.S. dollar (USD), Canadian dollar (CAD), British pound (GBP), Australian dollar (AUD), Japanese yen (JPY), Swiss franc (CHF) and New-Zeeland dollar (NZD). The major forex pairs are these currencies paired with the U.S. dollar. 

Continue reading or get a FREE 50$ no deposit bonus forex and start forex trading in real-time.

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Forex Trading Basics for Beginners

Like everything else, currencies need to be priced in a currency, so currencies always trade in pairs. This fact makes forex different from other markets in two critical ways.

#1 Price Movements Are Always Relative to Another Currency 

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 forex. 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. 

  • If traders want to benefit from the USD’s appreciation 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 Japanese Yen (JPY) is relatively weak (Yen depreciation), if the USD is doing even worse, you can still profit from selling the USDJPY.


#2 It’s Just as Easy to Profit in Bear Markets as in Bull Markets

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. 

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.

Confused? Stay with our forex basics here—the details of how we’re always buying one currency and selling another, and how we profit from the bear as well as bull markets, will be clarified further in the forex trading masterclass when we learn about the anatomy of an forex currency pair price quote and better understand what actually happens in a forex trade.
 


>> Enroll in Course

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Forex Trading Strategies

If the above explanation has you thinking you might be the next George Soros, you’re probably equal parts optimistic and fearless.

As noted at the start of this post, forex trading offers the best risk/reward potential. You’re making a bet that what you buy will go up in value. With forex trading, you want the currency you’re buying to go up relative to the currency you’re selling. If you bought a mini lot of a currency and it goes up 1 pip in value, your investment would be worth $1 more. If it goes down 1 pip, your investment would be worth $1 less.

Currency rates don’t tend to move by big intraday margins, so there are basically two strategies to make money in forex trading:

  • Riding stable, proven, long-term forex trends such that weeks or months movements still translate into large amounts of money.
  • Using leverage to amplify small hours or days percents movements and make bigger profits, and that is the basis for retail forex trading.


Here are some resources that include some top forex trading strategies:

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Forex Trading Courses

If you are thinking of getting involved in forex trading, taking an online course is a great place to start.

Whilst independent research is valuable, an online course allows you to gain a comprehensive introduction to the forex market whilst avoiding some of the costly mistakes beginner traders make.

Forex trading is particularly fast-paced and risky, so it is especially important to have a solid base knowledge before trading with your hard-earned cash.

An online course is a great place to start. But which forex courses are worth your time and money? 

There are so many out there, but most will waste your time and money because they’re either:

  • too superficial to give you the practical skills needed to start making money, or
  • too complex and detailed to provide clear step-by-step ways to actually start making money
  • too focused on the usual methods of forex trading that are too risky, complex, and time-consuming for most people to use successfully.


Forex Trading Masterclass gives you a variety of approaches to get started via safer, simpler, more profitable ways to lower your risk and increase your returns, either as a conservative forex trader or as a more passive longer-term investor seeking exposure to assets in the best currencies.

  • For traders, the masterclass focuses on reducing the high risk, complexity, and time demand normally associated with forex trading.
  • For long-term investors, it concentrates on how to hedge currency risk by diversifying portfolios into the strongest currencies for lower risk and higher capital gains and income.


The course is the ultimate guide to forex for retail traders and investors seeking to tap forex markets for better currency diversification and income:

  • Provides traders with safer, smarter, less complex, and time-consuming ways to trade forex with higher odds of success. 
  • Shows investors how to identify the currencies most likely to hold or increase their value, for both income and capital appreciation.
  • Explains how the very nature of forex markets means that regardless of market conditions there's always a playable trend somewhere, regardless of what other asset markets are doing, and how to find and exploit it for a short-term trade or a long-term investment in a currency pair, stock, bond, or other assets.


A must-own for any informed investor or trader that deserves to become the classic introduction to forex, but don’t take out word for it - enroll in the forex trading masterclass and convince yourself.

>> ENROLL IN COURSE

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Forex Trading Platforms

Trading platforms are software that you install on your PC, run in a web browser or a mobile application installed on your phone for trading on financial markets. These options are provided for traders to trade any assets of their choosing provided they are offered by their broker. However, in choosing the trading platform you want to use, there are many things to look out for. It’s not just about what features or functions the trading platform has to offer. There are many trading platforms available: MetaTrader 4 and 5, CTrader, NinjaTrader to mention some of the most popular offered by most of the forex brokers.

The best trading platform for your unique needs depends on your experience and trading goals. After reviewing fees, tradeable assets, and more across several brokerages, we rounded up the best forex trading platforms for both beginner and advanced traders to consider.

The MT5 trading platform has won awards in two categories during the latest Finance Magnates London Summit Awards. MetaTrader 5 has set itself as the best platform in both Forex and multi-asset trading.

MetaTrader 5 won two awards in both the "Best FX trading platform" and "Best multi-asset trading platform" categories. These awards set MetaTrader 5 as the industry standard and represent an acknowledgment of the contribution from the industry as a whole.

>> MetaTrader 5 Download

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Forex Trading Signals

The Forex Trading Signals service, which enables automatic real-time copying of trading operations from one trading account to another, is available straight from the MetaTrader platform. The service principle is simple: a trader provides public access to the deals he or she executes on financial markets, while other users can subscribe to this signal. The forex signal provider's deals are automatically executed on subscribers' trading accounts.

Thousands of free and paid signals are featured on the Signals tab of the MetaTrader platform. For convenience, all signal providers are sorted by their trading results and are provided with detailed statistics, growth, balance and equity charts, as well as full trading history. Choose the desired signal and subscribe to it — and all the professional trades will appear on your accounts! The first one thousand signals sorted by rating are featured on the platform's showcase, while the full list of signal providers is available on the MQL5.community website.

According to the service rules, all signal providers are carefully screened for credibility. If a provider's results over the previous month are far from satisfactory, this signal will not be featured in the showcase.

Additionally, the Trading Signals service enables successful traders to earn extra income on a regular basis by selling signal subscriptions to thousands of users around the world.

The built-in MetaTrader Copy Trading service is beneficial to both signal providers and their subscribers. Signal providers receive fixed monthly subscription fees, while signal subscribers automatically execute trading operations of professional traders on their accounts.

>> Subscribe to a Forex Signal 

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Forex Trading Robots

As the name implies, a Forex Trading Robot — also known as Expert Advisor or Forex EA goes beyond mere testing of trading strategies to actually apply them in real-time to make real trades with live market data. When the programmed expert advisor generates a buy or a sell signal, the platform automatically places the trade. These systems have been widely used by institutional traders for many years in all financial markets. In recent years Forex EAs has become much more popular with private traders, particularly because it does not require any coding skills to create, run, and optimize an automated forex trading system.

Assuming the forex EA is well designed, it is backtested, and its performance is monitored, programmed trading has some obvious advantages:

  • Never miss an opportunity: a trading robot can work 24/7.
  • No emotion, full discipline: a trading robot takes the emotion out of forex trading as long as you’re disciplined enough to let the system work even when you believe the rules don’t apply under current conditions.


So if:

  • You develop a clear, unambiguous set of trading rules that can be expressed in programming code.
  • You have the time and expertise to translate the rules into a program and backtest it, or to use an advanced Expert Advisor Builder to do that. Then auto-trading is the best way to execute an accurate forex strategy.


Expert Advisor Generator - 14 Days Free Trial

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Forex Trading Calendar

Many technical traders make the mistake of thinking that, because they take a technical approach to the market, they don’t have to pay attention to forex news events.
While it isn’t necessary to study the news, it is advantageous to know when the forex news is expected. This is especially true for heavy-hitting news that can adversely affect the market. Not only can this type of news affect an open position, but it can also cause slippage and gaps that can wreak havoc for pending orders.

A forex trading calendar is used by investors to monitor market-moving events, such as economic indicators and monetary policy decisions. Market-moving events, which are typically announced or released in a report, have a high probability of impacting the financial markets.

The Forex Factory Calendar available at forexfactory.com is by far the most user-friendly and accurate economic calendar to keep track of Forex-related news events.

>> How to read and trade the Forex Factory news

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Forex Trading FAQ

Is Forex trading gambling?

It’s no secret that much of the 75 percent or more of retail forex “traders” who fail aren’t really even attempting serious trading. They want some fun and excitement by betting on an outcome (gambling). 

Forex brokers love to aim marketing campaigns at this herd of sheep, which so willingly runs to the slaughter. For them, it’s a game and not a business. For you, dear reader, that’s good news. 

The mere fact that you’re reading this article suggests you’re not one of the madcap cowboys or at least don’t want to be one of them. The high failure rate doesn’t apply to you. Continue doing your homework, and expect to do all the things you’d do if you were starting a business that faces lots of competition from bigger, more skilled players. Expect to invest plenty of time in study, and practice, be it over a shorter period as a full-time trader or over a longer one as a part-time trader. 

Whether you’re a trader or a traditional, conservative, long-term investor seeking capital gains or steady income, the forex trading masterclass created specifically for you, not the wild-eyed action junkie forex trader so beloved (and quickly fleeced) by many in the forex industry.

Is Forex trading legit?

While foreign exchange (forex) investing is a legitimate endeavor and not a scam, plenty of scams have been associated with trading forex. As with many industries, plenty of predators exist out there, looking to take advantage of newcomers. Regulators have put protections in place over the years and the market has improved significantly, making such scams increasingly rare.

Forex trading first became available to retail traders in the late 1990s. The first handful of years was wrought with overnight brokers that seemed to pop up and then close down shop without notice.

The common denominator was that these brokers were based in nonregulated countries. While some did take place in the United States, the majority seemed to originate overseas where the only requirement to set up a brokerage was a few thousand dollars in fees.

In a lot of cases, brokers often overestimate the ability of investors to make a lot of money quickly and easily through the forex market. They typically prey on new investors who don't understand that forex trading is what is known as a zero-sum game. When a currency's value against another currency gets stronger, the other currency must get proportionally weaker.

Get you get rich by trading forex?

Forex trading requires time and effort as with any other competitive, lucrative field. Some approaches are easier than the usual trading methods, 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 place to minimize the drain on your time, emotions, and finances. 

So, can you get rich by trading forex? Funny you should ask. At the end of the forex trading masterclass, you'll know it.

How much do you need to start forex trading?

Unlike most markets, you do not need many thousands of dollars to get started. That’s because in forex, we can trade with leverage (borrowed funds), typically 100:1 or more. This allows us to make substantial profits on small price movements. However, as noted above, that also means:  

  • For every $1 you have at risk, you control $100. 
  • For every $1,000, you control $100,000. 
     

Much of this forex trading course is about how to minimize the risk of large losses while maximizing the odds of profiting. It involves learning to cut losing trades short and let winners run so you can be profitable even when wrong on most of your trades. 

In theory, you can often start with as little as $100. However, you’ll learn that you’ll lower your risks and have more chances to profit by starting with at least a few thousand dollars (or the equivalent) if possible. As we’ll see later, the small position sizes available from mini and micro-accounts allow those with limited funds to trade smaller positions, which keeps the percentage of capital risked per trade acceptably low.

Forex Trading summed up

  • In forex trading, you’re buying and selling currencies over the foreign exchange market to earn an amount of money on the difference between the opening and closing price of the trade.
  • Currencies always trade in pairs and this fact makes forex different from other markets in two critical ways.
  • Currency rates don’t tend to move by big intraday margins, so there are basically two strategies to make money in forex trading.
  • If you are thinking of getting involved in forex trading, taking an online course is a great place to start.
  • Forex Trading platforms are software that you install on your PC, run in a web browser or a mobile application installed on your phone to place, monitor, and close trades.
  • The Forex Trading Signals service enables automatic real-time copying of trading operations from one trading account to another.
  • Auto-trading using an expert advisor generator is one of the best ways to execute a forex trading strategy.
  • A forex trading calendar is used by investors to monitor market-moving events, such as economic indicators and monetary policy decisions.

Forex Trading

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Sources: 

1. Guidelines for Foreign Exchange Trading Activities - https://www.newyorkfed.org/medialibrary/microsites/fxc/files/fxguide0901.pdf

2. Foreign Exchange Transaction - https://www.bot.or.th/English/Statistics/FinancialMarkets/FX/Pages/ForeignTransaction.aspx

3. Trading in foreign exchange (forex) - https://www.esma.europa.eu/system/files_force/library/2015/11/2011-412_1.pdf?download=1

4. Trading Forex: What Investors Need to Know - https://www.nfa.futures.org/investors/investor-resources/files/forex.pdf

5. Management of Forex Service Provision - https://www.sbv.gov.vn/webcenter/portal/en/home/sbv/fagm/moctafsp

6. Foreign exchange turnover in April 2019  - https://www.bis.org/statistics/rpfx19_fx.htm

7. Forex Trading: The Basics Explained in Simple Terms - https://www.goodreads.com/book/show/27263125-forex-trading

8. Currency Trading for Dummies by Brian Dolan - Currency Trading for Dummies by Brian Dolan

9. Forex Trading - https://moneysmart.gov.au/investment-warnings/forex-trading

10. (Forex) Trading For Individual Investor - https://www.sec.gov/investor/alerts/forextrading.pdf

Categories:  Forex