If you’re thinking about learning how to capitalise on the world’s biggest financial market and becoming a professional forex trader, you probably have questions like “How do you start Forex trading?” or “How much money do you need to start Forex trading?”
It’s pretty obvious why the foreign exchange market is so well-liked by traders once you learn how to trade it. You’ll learn that there are countless other currency pairs available for trading around the clock, including majors, emerging currencies, and exotics.
It may seem overwhelming to learn how to trade any market. But don’t worry, we’ve broken down the basics of forex trading into several steps for you to begin in this post.
6 Steps on How to Trade Forex in April 2023
In this post, you’ll learn that you won’t have to Google “how to start Forex trading Reddit” in this Forex trading guide because the accuracy of the results is doubtful.
However, you need to take note that when it comes to learning about trading, it never ends, even for experienced traders who make a full-time living from it.
Before we get into the specifics of how to begin trading Forex, bear in mind the following 6 stages that every trader should follow:
1. Choose Your Trading Style for Forex
Major banks and financial institutions purchase and sell enormous sums of currency every single day in a large amount of FX trading. Yet, there are two major ways for individual traders to get engaged who lack the resources to conduct billion-dollar forex trades: trading forex CFDs or trading forex through a broker.
Understanding What is Forex CFD
A forex CFD is a contract in which you consent to trade the variation in the price of a currency pair between the times you start and end your position. Start a long position, and if the price of the currency position rises, you will profit. If the price declines, you’ll suffer a loss.
One of the markets you can trade using CFDs is forex.
Using a Broker to Transact in Forex
CFD trading functions just like forex trading which is done through a broker, or sometimes a bank. There is no need to take possession of the currencies because you are speculating on the price changes of currency pairs. Going short instead of long is an option if you believe that the price of a currency pair is going down.
Yet you won’t have access to other markets if you trade forex through a broker.
2. Discover How the FX Market Operates
When you wish to trade currencies, one of the first things you need to learn is how the forex market works, which is significantly different from exchange-based systems like shares or futures.
Rather than trading currencies on a single exchange, a network of banks is used to purchase and sell foreign exchange. A market like this is referred to as over-the-counter, or OTC. These banks function as market makers, providing a bid price to buy a certain currency pair and a quotation price to sell a foreign pair. This is how it works.
Using Forex Providers for Trading
The majority of retail traders will use a forex trading provider instead of transacting in foreign exchange directly with one of the major banks. Providers of forex trading deal with banks on your behalf, locating the cheapest pricing and adding their own market spread.
These services give you access to the order books of market makers directly. Advanced traders can purchase and sell foreign exchange via direct market access, or DMA, by trading at the rates supplied by currency suppliers plus a variable commission.
3. Set Up an Account
Trading forex using CFDs will require an account with a supplier of leveraged trading.
There is no need to contribute money to your account until you want to make a trade; you can open an account in just a few minutes.
4. Make a Trading Strategy
If you’re new to the markets, creating a trading plan is especially crucial. A trading plan offers some structure for when you initiate and exit positions and helps remove emotion from your decision-making. A forex trading strategy, which determines how you spot opportunities in the market, is something else you might want to think about doing.
After making a decision, you can now put your chosen forex trading strategy into practice. Choose your first trade by using your preferred technical analysis tools on the markets you want to trade.
It’s important to note that although you only intend to trade using technical analysis, you should still keep an eye out for any changes that might lead to volatility. For instance, upcoming economic developments can have an impact on the forex markets, which your technical analysis might not account for.
5. Choose a Platform for Exchanging Currencies
You may trade forex quickly and intelligently with the help of trusted trading platforms. The best trading platform allows you to trade in:
- Internet browser
- One of their apps for mobile
- MT4 and other cutting-edge third-party platforms
Most forex trading platforms may be customised with personalised alerts, interactive charts, and risk management features to fit your trading preferences and style.
6. Open, Watch, and Then Close the Initial Position
After selecting a platform, you can begin trading. You only need to open the deal ticket for your preferred market to see the buy and sell prices indicated. Apart from determining the scope of your position, you can also put any stops or restrictions that will force your trade to be closed if it reaches a particular level. To start a long or short position, select buy or sell.
On the “open positions” section of the trading platform, you can keep track of your position’s profit or loss.
Example of Forex Trading
Investing in a GBP/USD CFD
The sale and buy prices for GBP/USD are 1.35540 and 1.35560 respectively. You decide to sell five standard lots at 1.35540 because you believe the pound would depreciate versus the US dollar as a result of a potential Bank of England interest rate decrease.
Each contract is worth 100,000 of the pair’s base currency. Selling a single GBP/USD standard contract in this scenario entails exchanging £100,000 for $135,540, making the total value of your position $677,700 (£500,000).
You don’t have to put down the whole amount of your investment upfront because CFDs are a leveraged instrument. The margin needed for a deal of this magnitude on GBP/USD is 0.50%, thus your margin would be $3,388.50 (£2,500), which is 0.50% of the total exposure of your trade.
Assuming Your Prediction is Accurate
The pound drops as you expected. When the buy price reaches 1.35440, you choose to exit the trade.
You multiply the difference between the position’s closing and opening prices by the size of the position to determine your profit. You multiply 1.35540 – 1.35440 by five CFDs to generate a profit of $500.00. (minus any overnight charges).
Calculating Your FX CFD Profit
You multiply 10 points (the difference between 1.35540 and 1.35440) by five CFDs to generate a profit of $500.00.
But keep in mind that only if your position is kept overnight do you have to pay overnight funding fees. Fees only apply if you trade foreign exchange directly.
If Your Assumption is Wrong
Instead, GBP/USD increases. When the buy price reaches 1.35700, you opt to reduce your losses and reverse your trade.
Your position has moved 16 points in your favour, resulting in an $800.00 loss for you (in addition to any overnight charges).
Calculating Your FX CFD Loss
You multiply -16 points (1.35540 – 1.35700) by $50 to get a loss of $800.00.
Conclusion (How to Begin Forex Trading)
You don’t need a lot of cash to trade Forex if you start out carefully and practise wise money management. If you keep your trade quantities short, you can begin trading with as little as a few hundred dollars. You should be able to find a trading strategy that works for you if you are prepared to put in the necessary effort.
One more thing to think about is that successful Forex traders put a lot of effort into their profession. You have a better chance of success the more work you put in.
About the Author: Ivandrea Ollero is a writer for Metatrader Platform website and shares insightful tips and tricks about Trading and Forex-related content. She loves to explore the Forex Market in her free time and also writes content about business, lifestyle, health, and more.