Forex Trading for Beginners

If you are thinking about getting into forex trading, it is important to select a broker that is suitable for your needs. Most novice hobby traders start with a small bankroll and want to make small trades, so sign up with a broker that offers this. On the forex market, a standard lot is out of reach for those with small bankrolls, especially if you refrain from or are prevented by law from using use leverage. Therefore, it is best to go with a broker that offers trading with mini forex lots, micro forex lots or nano forex lots.

Standard lot size: 100,000 units of the currency

Mini lot size: 10,000 units of the currency

Micro lot size: 1,000 units of the currency

Nano lot size: 100 units of the currency

It is also a good idea to check the minimum requirements for the first deposit. Are you okay with depositing this much, or should you seek out another broker that accepts smaller first deposits?

Finally, if your plan is to make numerous small trades, make sure you do not select a broker account where the fees (and possibly other costs) will eat up all your profits. If you make a $10 profit on a trade, you do not want to pay a $15 fixed commission.

Being a Retail Trader

Speculating on the forex market used to be something that only traders with access to huge amounts of money did, e.g. traders working for investment banks or funds. Sure, the average chap could bring home some pesetas from his vacation and hope they would appreciate in value against the sterling, but it was not really a feasible way of investing – especially not with all the fees and charges and huge spreads along the way.

Today, the situation is very different, as the internet is filled with online forex brokers and platforms catering to the needs of small-scale hobby forex traders. You no longer need to work for a big institutional trading corporation to get access to the forex market in a convenient way. You can sign up with a broker, make a modest first deposit and get going.

There is also much more information and educational resources available today. You do not need a master’s degree in economics to make a profit, but we advise that you spend some time and energy learning the basics of the forex market before you jump in and start risking your hard-earned cash.

We recommend that anyone interested in forex trading start out with a free demo account. Many brokers will allow you to sign up for a free demo account without requiring any first deposit. The demo account will be filled with play money, and you can use it to make play-money trades on the platform. It is a great way to learn about forex trading without risking real money. You can see if you like the platform interface, test out different strategies and play around with many different currency pairs. Demo accounts are available for both desktop trading and mobile app trading. Today, there are so many great forex brokers to choose from that offer free demo accounts that there is no need for the novice trader to sign-up with brokers that refuse to give out demo accounts or require a deposit first. If anything, be a bit suspicious about brokers who refuse to allow you a test run before you part with your money.

The Currencies with the Highest Liquidity on the Forex Market

Standard advice for novice forex traders is to start with currencies and currency pairs with high liquidity. When the liquidity is high, your orders will likely be matched quickly. When liquidity is low, there is a much greater risk of slippage. It is also easier to find brokers that offer a low spread for such currency pairs, including brokers that offer a low spread without compensating by charging high commissions.

The three currencies with the highest liquidity on the forex market are USD, EUR and JPY and all of the top-10 traded currency pairs include one or two of these currencies.

The United States Dollar (USD)

It is issued by the United States but has also become legal tender in several other countries. In addition to this, the USD is also used informally in a wide range of countries where it is not the official currency. A large chunk of the world´s total international transactions are settled in the United States dollar.

In 2021, the USD had a daily trading volume of around 2.9 trillion USD.

The USD is by far the most widely kept currency in national currency reserves.

The Euro (EUR)

The Euro is very important for the European single market, one of the world’s biggest markets. Although some of the countries included in this market do not have the Euro as their national currency, they still widely use it for international transactions within the single market.

The Euro is distributed by the European Central Bank, which is headquartered in Frankfurt, Germany.

The Japanese Yen (JPY)

Japan is a major exporter of goods, which boosts market demand for the Japanese Yen. The central bank of Japan is actually working to prevent the JPY from becoming too strong since an overly strong JPY could hurt the export sector. Japan is also known for its very low-interest rates, which has prompted a type of speculation where traders take out loans in Japan and invest the money in countries where interest rates and yields are higher.

The Japanese yen accounts for less than 5% of the global currency reserves.

Terms to Remember

If you are already familiar with stock trading or similar, you will recognize many of the terms below since they are also used for forex trading.

Ask Price

The lowest price at which a trader is willing to sell a currency.

Bid Price

The highest price a trader is willing to pay for a currency.

Leveraged Trades

When you use leverage, you are borrowing money from your broker to carry out purchases. Example: You put in $100 from your account and borrow $900 from your broker to make a $1,000 purchase. You are risking $1,000 on this affair.

Leveraged trading is very common on the forex market but entails additional risk since you can end up losing money you never had. Leverage will enhance both profits and losses for the trader.

One point that you need to understand before you decide to use leverage is the concept of margin. In essence, the margin is money or valuable assets kept in your account to ensure that you can fulfil your obligations to the broker. If the market is not going your way, the broker can demand that you deposit more money into your account right away to fulfil the margin requirement, or they will automatically close open positions until the margin requirement is fulfilled that way instead. Using leverage can therefore result in a position being closed against your will in a situation where you would have preferred to keep it open and ride out the market.

Beware of Scams

As more and more people become interested in retail forex trading, there are fraudsters out there who seek to profit by scamming people. Below are a few examples of points to keep in mind to reduce the risk of being scammed.

Compare Brokers

If you want to start trading forex, do your homework and compare the many reputable online forex brokers available out there. Do NOT go with a broker because they cold-called you, because you got an unsolicited email or something along those lines.

Check out the License

It is recommended to stay with a broker that holds a license from a reputable license authority. Some license givers are laxer than others, so simply having a license is not enough. It is also generally a good idea to go with a broker that is licensed in your part of the world. If you are in the European Union, select a broker with a license from an EU member country instead of getting into a more complicated legal situation with a broker headquartered in the Seychelles and licensed by Antigua y Barbuda.

If Something Sounds too Good to be True, it Probably is

Forex trading is about risking money and hoping to make a profit. You can increase your chances of being profitable, but even professional traders take hits and lose money now and then.

Stay away if someone claims a 100% safe system that guarantees a profit. If they actually had a money machine, why would they be in such a need for $999 from you or to get access to your trading account?

Be Extremely Wary About Giving any Third-Party Access to your Account

A common scam revolves around getting traders to give the fraudster access to their trading account. You may, for instance, be offered a wonderful piece of trading software that will make you rich while you sleep, but you have to give the software access to your trading account to make trades in your name.

If you want to make automated trades, there are reputable trading platforms to use where this feature is built-in, so you do not have to deal with suspicious third-party entities who reach out to you on Telegram.