How to Start Forex Trading: A Step-by-Step Guide

Forex trading is an exciting way to enter the global financial market and make a lot of money. This trading platform can attract many financial traders worldwide. A savvy investor can profit from exchange rate shifts. This is true despite the involvement of influencing geopolitical events and other factors. The best thing about the market is its easy access. A trader can access it 24 hours a day, five days a week. This lets traders react to any geopolitical event. They can use cash movements to profit by trading.

Before diving into Forex trading, let’s review some basics. They may help us make a solid trading plan. This guide will help you explore all the primary forms.

• Choosing a forex broker
• Setting up a forex trading account
• How do we start, and what is the basic amount we can begin forex trading?
• Answering general doubts before starting.

Getting Started with Forex Trading

• The forex market is the most dynamic and liquid financial market. Over $6 trillion are traded daily. It is mainly recognized by buying and selling currency pairs. Investors try to make profits by speculating on the rise and fall of currency prices.
• Global economic, financial, and political factors primarily influence the market. A beginner might need help to start in this market. The strategies and fluctuations can be overwhelming at first. In the next half, we will guide you on how to get started with forex trading.

1. Make a Command on the Basics of Forex Trading

• The whole of Forex trading depends on currency trading. It involves buying and selling international market currencies, which are always in pairs. For example, Euro to American Dollar (EUR/USD) or American Dollar to Japanese yen (USD/JPY).
• A trader’s expectation forms the basis of Forex trading. They expect one currency to strengthen or weaken against another in a pair. If the prediction is correct, then there will be a profit.

2. Choose a Reputable Broker

If you’re looking to invest in the forex market, you may need a reliable broker. Broker acts as an intermediate between you as an investor and the market. Before selecting a broker, keep these three things in mind.

Regulation	Commissions	Trading Platform
1. This is the most important task. Research if any financial authority recognizes the broker. 2. This ensures fund protection.	1. Brokers may charge spreads or commissions. They do this by offering traders a platform to trade. 2. Spread is identified as the difference between buying and selling price. The main catch is to find a broker with competitive pricing.	1. You can choose from anyone from the many trading platforms available in the market. 2. We need to choose a broker with a reliable, easy-to-use trading platform. It must provide access to charts and real-time data.

3. Demo Account

• This may sound boring, but setting up a demo account is very effective. Many forex traders provide them. This will let you trade and learn the platform without burning your investment.
• A trader can get comfortable with market movements and explore different strategies. This will also give you an understanding of how currency pairs move.
• It is considered beneficial if you develop a trading strategy on demo content before entering the market.

4. Understand Key Concepts

A few key concepts of the forex market are being used repeatedly. We need to understand them.

Leverage	1. It allows the trader to hold a prominent position with less capital. 2. It can do both things: expose you to greater threats or increase profit percentage.
Margin	1. It is the amount of capital required for an open position. 2. We need to know how the margin works to avoid unexpected losses.
Pips	1. It is the slightest price movement in a currency pair. 2. The movement of the pip is crucial to understanding the gains and losses.
Risk Management	1. As an investor, you should use tools like stop loss to limit the loss. 2. It is said to never take a risk that you can’t afford to lose.

5. Develop Trading Strategy

Developing a trading strategy is a must. It helps you to navigate through different situations that can arise in the market. It will determine how you enter the market and decide the criteria for entering and exiting a trade. A few popular strategies are:

Day Trading

• This strategy involves opening and closing a trade on the same day.
• The profit will depend on short-term price movements.

Swing Trading

• This kind of trade involves holding the position for several days or weeks.
• The profit will depend on medium-term price swings.

Scalping

• This type of strategy involves making many small trades within minutes or hours.
• The profit will depend on tiny price movements.

6. Start Live Trading, Learn and Improve

• Now you’re in the actual game; once you have covered all the bases, start with real money. Make small trades, aim for low profits, and build your game step by step.
• Forex trade, or any other financial market trade, requires consistency. Stay updated on global news. Keep learning about the market. With time and effort, you will win the race.

How to Choose a Forex Broker

Choosing a forex broker might require a fair amount of time and research, so you must be very sure. A broker acts as an intermediate between a trader and the market. With so many options, it can sometimes become an overwhelming exercise. Before choosing a reliable and reputable broker, look at these.

1. Regulation & Security

It would help if you researched a forex broker with attention to regulations. Financial authorities recognize a regulated broker and provide them a license. For this, they must comply with industry standards and safeguard your funds. Few regulatory bodies, country-wise.

The United States of America (USA)	Commodity Future Trading Commission (CFTC) & National Futures Association (NFA).
United Kingdom	Financial Conduct Authority (FCA)
Europe	Cyprus Securities and Exchange Commission (CySEC)

2. Trading Platform

A broker provides you with a trading platform. It determines the trading experience and ease with which a trader can execute their trades in a live market. While evaluating a platform, a trader must keep the abovementioned things in mind.

1. Interface: It should be user-friendly.
2. Mobile Access: Check if the platform has a mobile application. Can you place a trade through it?
3. Charting Tools: Does the platform offer different charting and other technical tools?
4. Order Execution: How fast is order execution? Is there any slippage*?

Slippage is the difference between executed and actual price.

3. Spreads and Commissions

• Brokers may ask for fees in the form of spreads or commissions.
• We can define spread as the difference between the bid and ask prices. Spread is asking for a fixed discussed price per trade.
• A trader must be wise if the broker charges on the spread. Some brokers asked for fixed spreads, and some variables changed with the market. Aim for a low price.
• It has been seen that commission-based brokers may have a lower spread. Traders must check the total cost of executing a trade by factoring in the commission fee.

4. Leverage and Margin

• With leverage, a trader can hold a prominent position with a smaller capital. Many brokers offer high leverage, up to 500:1, which can be risky for a compulsive trader. A trader must be astute and cautious when deciding on this factor.
• Margin is the amount required to open a position in the market. How the broker handles the margin calls when your account falls below the required margin can be an essential factor to think about.

5. Account Type and Minimum Deposit

• In the competitive broking market, brokers may offer you different account types. The account types may be classified as standard accounts for retail traders or VIP accounts.
• Account types largely depend on the features they offer. Features can be tighter spreads, faster execution, or personalized customer support.
• Many brokers keep low minimum deposits to encourage investors. Some may keep the minimum deposit high because of advanced trading account features.

6. Customer Care

Customer support is considered the pulse of any business. Primarily when the market operates for 24 hours. If you encounter any issue with your trade, you need someone to walk you through that issue. When choosing a broker, customer care services play an essential part. Some of the necessary features that a trader might explore are,

• Availability of customer support.
• Language support
• Contact options: Live chat, hotline number, WhatsApp support, etc.

7. Deposit and Withdrawal Option

While choosing a broker, you may also check how to deposit and withdraw money from your account. The options provided by the broker should be secure and convenient to use. Some standard methods are.

• Credit/Debit card
• Bank Transfer
• E-wallets (PayPal, Skrill)

Traders must check for any fees on deposits and withdrawals. An ideal broker must have a fast and low-cost withdrawal and deposition process.

8. Additional Feature

Some brokers offer tools that make their platforms more reliable. Features like

In-depth Market research

You can access daily market news updates, weekly market analysis, and expert commentary.

Educational Resources

Webinars, tutorials, and courses to improve your trading experience.

Risk Management Tools

• Stop-loss tools.
• Negative balance protection, and more.

Setting up a Forex Trading Account

Now, we have a good, reliable broker. We must make our first forex trade, for that:

1. Sign up for an Account

You can start this by completing a registration process on the Forex website. For the complete signup process, you may require the following.

Personal Information

You must provide information like name, address, phone number, and email.

Document Verification

The broker requires documents for the Know Your Customer (KYC) procedure. These are necessary with anti-money laundering regulations. Document Required are:

• Passport or Driver’s Licence:For proof of identity.
• Utility Bill or Bank Statement: For address proof.

Account Type Selection

• Many brokers provide different types of accounts, such as standard, mini, or VIP.
• As a trader, you must choose any of these based on your requirements. Some of your requirements include minimum deposit requirements, trading Costs, etc.

2. Fund your Account

Once your account receives approval and verification, you must deposit a minimum amount. A broker can allow different funding options; we need to choose one.

• Bank Transfers
• Bank Cards
• E-wallets (PayPal, Neteller)

3. Select Trading Platform

Your broker will provide a trading platform from where you can execute your trades. Some of the platforms that people use are:

• MetaTrader 4 (MT4): User-friendly, advanced charting tools and expert advisor (EA).
• MetaTrader 5 (MT5): Updated version of MT4 with more features.
• Proprietary Platforms: Some brokers provide their custom-built trading platform. They may design a particular trading environment.

4. Start Trading with a Demo Account

This can be very helpful, starting with a demo account without real money at stake. Many brokers offer demo accounts, which are vital for beginners. They allow:

• A demo account can help in placing traders without risking actual money.
• Trying and testing different strategies.
• Getting familiar with the tool.

5. Understand Risk and Set a Trading Plan

Before diving deeper into forex trading, you must evaluate certain necessary things.

• With a clear head, you can decide how much money you can risk per trade. Do it in advance; it helps you keep your senses during a trade. Use risk management tools, like stop-loss, to protect your account from market risks.
• Be clear with your financial goals based on your risk tolerance.
• Determine a strategy for entry and exit. You can use technical indicators, news events, or price action.

6. Start Live Trading

Once you’re confident enough with demo trades, it is time to move to actual trades. You can start with small positions and minimum-risk trades and increase your willingness to take risks.

Best Time Frame for Different Forex Trading

Although this topic is complex and difficult to generalize, I would like to give you a general idea. We classify forex trading mainly into four trading styles. Based on experience, we can predict the best time frames for each. These are:

1. Scalpers

A 1–5-minute chart range is considered suitable for scalpers. Scalpers aim to cash in their positions on small price movements, so they execute multiple trades in short timeframes.

Further breakdown for scalping:

• The 1-minute chart is the most aggressive form of trading. It offers quick opportunities and requires quick decision-making.
• The 5-minute chart is a less aggressive form for scalpers. It gives time to analyze and make decisions.
• It works best if the market is highly liquid. It can happen in overlapping sessions, e.g. (London/New York).
• In scalping volatile pairs can provide more opportunities. It can also increase the risk.

2. Day Traders

The best timeframes for day traders generally fall between 15 minutes-1 hour chart range. Day traders typically focus on capturing price movements within a single trading day.

Further breakdown for day trading:

• A 15-minute chart provides more frequent trading opportunities. In this time frame, traders can precisely analyze the trend and take suitable actions.
• A 30-minute chart gives traders more time to analyze the price movement. Traders can make decisions based on the movement.
• Some traders prefer a 1-hour chart.  It offers a clear view of the intra-day trend. The 1-hour chart is comparatively less chaotic and makes it easier to predict the trends than lower timeframes.
• Pick a trade during volatile sessions (London and New York). It can bring more opportunities.

General Advice: Stick to more volatile currency pairs like EUR/USD, USD/JPY, or GBP/USD.

3. Swing Traders

The 4-hour-daily charts are the ideal timeframes for swing trading. Typically, it records small price fluctuations. The position is usually held for days or weeks in swing trade.

Further breakdown of swing trading:

• A 4-hour chart helps the trader to identify medium-term trends and reversal. The chart is effective for making long predictions within a day. It has little market noise. So, trades execute well.
• The daily chart is one of the most often used periods for swing trading. It provides a distinct picture of long-term patterns.
• Traders show less preference for the weekly chart. It can help swing traders identify support and resistance or confirm long-term trends.
• Swing trade requires patience and discipline.

4. Position Traders

The best timeframes for position trades are a daily, weekly, or monthly chart. Investors can hold the position for weeks, months, or even years in a long-term approach.

Further breakdown of position trading:

• The daily chart helps traders identify exit levels.
• The weekly chart clearly illustrates sustained trends and significant support/resistance levels.
• The monthly chart shows a long-term trend. It helps traders spot significant market turning points.
• Traders with a longer time horizon can perceive the “bigger picture.” Aligning their financial objectives with the market will be beneficial.

Forex Trading vs. Stock Trading

The main distinctions between the two forms of trading are centred on risk, techniques, and market size. Here is a breakdown.

Differences	Forex Trading	Stock Trading
Market Size & Liquidity	1. One of the largest financial markets. Over $6 trillion is traded daily. 2. Provide high liquidity; traders can enter and exit the positions with ease.	1. A smaller market than forex 2. Stocks affect liquidity differently. Regarding equities, blue chip stocks are more liquid than other stocks.
Trading Hours	1. Five days a week for 24 hours. 2. Operational in major international cities, including Sydney, New York, Tokyo, and London.	1. Operates typically for fixed hours within a day. 2. The hours of operation for the New York Stock Exchange are 9:30 AM to 4:00 PM, ET.
Volatility & Risk	1. There may be market volatility. It is influenced by market mood, economic data, and geopolitical developments. 2. High volatility means greater risk as well as excellent opportunities.	1. Though not quite a forex market, the stock market can also be volatile.  2. Stock price movement depends on factors that are specific to the company.
Leverage	Forex brokers often provide high leverage up, to 100:1 or even higher.	With ratios ranging from 2: 1 to 4:1, leverage in the stock market is often smaller than the forex market.
Transaction Cost	In the forex market, brokers generally charge no commission but charge in spreads. It is the variation in price between buying and selling.	In the stock market, brokers charge a commission per trade or low fees. It can depend on the broker.
Market Influencer	Macroeconomic factors: Inflation, interest rates, geopolitical events etc.	Company performance, management decisions, earning reports market trends etc.
Trading Style	High liquidity and volatility attract scalpers, day traders and swing traders	Investors with a long-term approach.

Basic Amount to Start

It depends on variables such as broker, risk tolerance, and trading style. I’ll explain it to you in detail.

1. Minimum Deposit with Brokers

• Some brokers allow you to start with $10 to $50. These are micro-accounts.
• For a standard account, the typical minimum deposit is $100 to $500.
• The minimum deposit for ECN* accounts can be $500 to $1,000. It also offers tighter spreads and better pricing.

ECN- Electronic Communication Network.

2. Recommended Starting Capital

• • For beginners, you can start with as little as $100 to $500. You can trade smaller lot sizes as a result.
• For those who manage risk well and are serious traders, $1,000 to $5,000 is more advantageous.

3. Risk Management

One of the basic rules of forex trading says to take a small risk between 1-2%.

For example, if you have a $500 account, you risk only $5 to $10 per trade.

4. Leverage

• Forex brokers offer a high leverage of 1:50 up to 1:100 or higher. High leverage lets you hold a higher position; it also increases risk. Utilize it with careful thought.

Conclusion

In this blog, we have mentioned the ways to start forex trading. The significant steps involve shortlisting and finalizing the broker. There are different ways to finalize a broker. Once you do that, begin with registration purposes. Once you complete everything, you should start with a demo account. This gives you a natural feeling of live trading. Get used to the platform and practise on entry and exit levels. With time, you can better manage the risk. Patience, continuous learning and discipline are keys to becoming a successful forex trader.

Frequently Asked Question