Published Otober 19th, 2018. By easyMarkets The foreign exchange (Forex) market is one of the world's largest financial markets, where trade opportunities are available throughout 24 hours a day.
Are you interesting in becoming a Forex trader who rides on the waves of currency pairs, and makes money from home 24 hours on 5 business days a week?
This article will help you to understand the basics and learn how to get started in Forex trading. 
Understanding Forex Trading Basics
To get started in Forex trading, you need to understand basic Forex terminology. Below is the cheat sheet:
- Base & quote currency: Every currency pair contains a base currency and a quote one. The first currency appearing in a currency pair quotation is the Base currency. The second part of the quotation is the Quote currency.
For example, in the EUR/USD pair, the EUR is the Base currency, while the USD is the Quote currency. Exchange rate: The exchange rate is the price that you have to spend in quote currency to buy base currency. Long position: When opening a long position (so-called “go long”), you buy the base currency and sell the quote currency. Short position: When opening a short position (so-called “go short”), you buy the quote currency and sell the base currency. Bid: The Bid price is the price at which your broker is prepared to buy base currency in exchange for quote currency. Ask: The Ask price is the price at which your broker is prepared to sell base currency in exchange for quote currency. Spread: A spread is the difference between the bid and ask prices
. Leverage: This is a tool used to increase purchasing power. For example, if you use 1:400 leverage, your $1 can be traded as if it were $400. Margin: When you use leverage in trading, your broker will extend to you an amount of credit. This amount is called Margin. Pip: Being short for Point in Percentage, Pip is the unit of measurement presenting the change in value between two currencies. Getting Started in Forex Trading
1. Deciding Your Initial Trading Capital
To get started as a Forex trader, you should foremost consider how much you want to invest.
Differing from brokers in other markets, Forex brokers often require low minimum deposits (for example, at easyMarkets, you can start trading with just 100 USD).
With that said, your amount of capital will greatly affect your returns. A Dailyfx recent survey involving more than 10,000 Forex market participants showed that traders with large account balances tend to be profitable on a higher percentage of trades.
While traders who make consistently small deposits usually witness unhappy trading results.
No matter how much you decide to invest in the FX market, remember not to risk more than you can afford to lose.
2. Choosing a Forex Broker
The broker is like a companion in your Forex trading career. Hence, picking a good companion will bring you many advantages. Below are the criteria that you should consider when choosing your forex broker:
Being regulated: Your funds and personal details will be safe and secure if you trade with a licensed broker. That’s why you need to put the regulation factor on top when researching a Forex broker. Offering low spreads: Trading with a broker offering low spreads will save you lots of money. Offering a wide range of financial assets: Having multiple assets to trade, you will find multiple opportunities to strike and profit. Providing good trading platforms: The broker’s platforms should have sufficient functions supporting you in trading, such as real-time charts, news & data, and analytical tools. The broker should also offer mobile platforms compatible with both iOS and Android devices. Providing various types of accounts: Many FX brokers offer traders three or more account types to choose from. Each type of account carries different services; higher-level accounts often deliver larger benefits such as lower spreads, faster order execution, or additional tools. Therefore, choosing a broker offering multiple types of accounts will bring you more options with your starting capital. Having a professional and responsive support team: Do you want to wait weeks for a reply to your question/issue? If not, select a broker with a professional and responsive support team. Offering high leverage: Leverage helps to multiply your purchasing capability. Therefore, high leverage will be very helpful if you have limited capital.
3. Defining Your Trading Strategy
Now you have decided your initial trading capital and your Forex broker. It’s time to define your trading strategy. There are two popular strategies in the FX market: fundamental analysis and technical analysis. Below are the details about these strategies:
Fundamental Analysis: This is a trading strategy based on fundamental indicators of currency values such as Non-farm Payrolls, Purchasing Managers Index (PMI), Consumer Price Index (CPI), Unemployment Rate, Retail Sales, or Durable Goods. Besides these reports, meetings of Central Bankers also affect the Forex market strongly.Most traders use Fundamental Analysis to predict long-term trends of currencies; nonetheless, some traders also perform short-term trades on economic data releases.Technical Analysis: This is a trading strategy based on price action and volume to analyze trends of currencies. In Forex, some of the most prevalent forms of technical analysis include Parabolic SAR, Pivot points, The Elliott Waves, and Fibonacci studies.You can also use technical indicators to analyze trends; some of the most common technical indicators include Moving Averages, Relative Strength Index (RSI), and Moving Average Convergence-Divergence (MACD). Note that these indicators can be combined to make more accurate trades. No matter which strategy you use, don’t expect for instant results. Both fundamental analysis and technical analysis are effective in trading as long as they are used correctly. Therefore, pick one that suits you best, and spend time developing and perfecting it. You can also combine both strategies to make better predictions.
Important Notes to Remember As a Forex Trader
Below are some tips from Forex experts that you should keep handy at all times:
Don’t start trading on a real account until you make a consistent profit on a demo account. Take your time to learn, test your strategies and practice trading elaborately with virtual money first. Don’t let emotion affect your trading activity. Whenever you are in a bad temper, stay off trading.Remember that the trend is your friend. Trading towards the trend increases the likelihood of success, hence, don’t try to go against the trend unless you have a good reason.
The Bottom Line
Forex trading is an interesting and potentially rewarding activity, but it also requires lots of time and effort to master. To become a professional trader, you may have to spend a long time learning and practicing trading. “Practice makes perfect,” so don’t rush.
If you start with the most basic steps mentioned above, then keep learning and sharpening your trading skills over time, you’ll set yourself up for the best chance of success.
Remember not to give up and stay focused, and one day you will become a successful Forex trader.
