How To Start Trading Forex In 4 Easy Steps
Have you always wanted to trade Forex?
I don’t blame you, it’s the most popular tradable choice in the world!
And for good reason too.
Did you know that more than $5.3 trillion is traded in the currency world EVERY day?
The opportunities to trade forex and make money doing so are massive.
And I would know, I do it for a living.
But how exactly can you get started, and what do you need to know to become a profit-banking Forex trader?
That’s why I’ve put together this four-step strategy that’ll help you start trading in no time!
Simply read on to start trading Forex in four simple steps…
How To Make Money From The World’s Most Popular Market
The world of Forex might be packed with opportunity, but that doesn’t mean you can just jump straight in!
Ask any trader who’s done that and I guarantee you they’ve ended up with their tails between their legs…
And a sore bank account!
That’s why I’ve devised this simple four step approach you need if you want to start trading Forex.
Firstly, you need to know what it is.
You then need to learn the basics.
Thirdly, you need to find a broker.
And lastly you need to start trading!
Let’s delve into each step in a bit more detail…
Forex Strategy Step #1: What is Forex?
Forex, or Foreign Exchange, is an unregulated market and also known as OTC (Over-the-counter). It’s the biggest market with average daily turn-over of more than $5.3 trillion.
It’s even bigger than all the US stock markets combined!
Although due to its OTC nature, no one can really give the precise numbers as to the forex turnover, but Forex is indeed a big market and thus allows many people to take part.
From your neighborhood bank to specialized investment companies and even your friends; The Forex market always offers a piece of the action whoever you are and wherever you are (even from your home!).
The basic concept of trading Forex is very simple.
You trade (or speculate) against other traders on the direction of a currency.
So, if you believe that the Euro is going to rise, you would BUY the Euro, or SELL the Euro if you think the Euro would fall.
It’s as simple as that.
Now that you have an idea of how it all works, let’s look at a few more basics…
Forex Strategy Step #2: The Forex Basics
Before you get ready to deposit your funds and start trading, there are some important points you must understand.
I’ve outlined a few of the important ones below:
Forex Brokers: In order to start trading Forex, you’ll need to trade through a Forex broker. There are thousands of Forex brokers out there who allow you to open a Forex trading account for as little as $5! The Forex broker basically facilitates your buy and sell orders and also allows you to research the markets (also known as technical or fundamental analysis), to help you make more informed decisions and place better trades. Of course, they allow you deposit more funds or withdraw your profits when you want to.
Trading Platform: You need a trading platform from which you can place your trades, which are then sent to the broker for settlement. A trading platform is essential for you to conduct your technical analysis and also to see the current market prices. Most retail brokers offer the MT4 (short for MetaTrader 4) trading platform, which is free of cost. You can also open a demo trading account and practice trading with virtual money to gain the experience required before trading with real money. I prefer the Ctrader platform, which is much better for managing your position according to your money management rules.
Forex Trading Hours: While you might have heard that the Forex markets “never sleeps”, it actually does. Firstly, you won’t be able to trade on weekends (Saturday and Sundays). But for the rest of the week, the Forex market operates 24 hours a day. This is due to the fact that Forex trading is global. At any point in time, you’ll always find an overlap of a new market session while the previous market closes. What time of the day or which market session you trade plays a big role if you’re an intra-day trader or a scalper.
Now that you have a basic overview of the forex markets, here are some final pointers to remember before you start trading for yourself:
What Is A Pip?: Pip is a measure of change in a currency pair’s value and is to the 5th decimal. For example, if EUR/USD changes from 1.31428 to 1.31429, the change is denoted as 1Pip (1.31428 – 1.31429 = 0.00001). When you trade, the more pips you make, the more profit you have. For example, buying EUR/USD at 1.31428 and selling (or closing your trade) at 1.31528 would give you 100Pips in profit.
Reading Quotes: Forex quotes are presented in a Bid and Ask price (both of which vary by a few pips and from one broker to another). The Bid price is the price at which you can buy and the Ask price is the price as which you can sell. So, a EUR/USD quote would look like this 1.31428(Bid)/1.31420(Ask).
What is A Spread?: Spread is simply the difference between the Bid and Ask price. So in the above example, for 1.31428/1.31420, the spread would be 8 Pips.
What Is A Leverage?: Leverage is the amount by which you can request your broker to magnify (or increase) your trade value. Leverage is often quoted in ratios such as 1:50, which means that when trading on a 1:50 leverage, your $100 is magnified to $50000. Leverage is important both in terms of making profits as well as managing risks (and your trades).
What Is A Lot?: A lot is a unit by which you place your trade. In financial terms, a lot is also referred to as a contract. There are preset lots (or contract sizes) that you can trade. For example, a standard lot is nothing but 100,000 units (known as 1 lot).
Reading Charts: The ability to understand and read the charts is very essential to trading. Depending on your approach, you can choose between a line, bar or candlestick charts and trade accordingly (for example trading based on candlestick patterns).
Placing Orders (How to buy and sell): In Forex trading, it’s possible to either buy or sell any currency pair. Most trading platforms give you this option. You buy when you think that price will go up and you sell when you think that price will fall. There’s a common saying used in Forex trading, which is “Buy Low, Sell High” - An important point to remember!
Order Types: Besides buy and sell, another point to remember the types of orders. There are two basic order types: Market orders and pending orders. When you click on ‘Buy’ or ‘Sell’ you are basically buying (or selling) at the current market price. A limit order on the other hand tells the broker that you want to buy or sell only at a particular price.
Forex Strategy Step #3: Find A Winning Forex Broker
As mentioned, there are tons of Forex brokers out there!
So, I really understand how confusing it can be to find a good one.
If you’re looking for a good Forex broker, here are a few points to remember:
- Look for a Forex broker that is regulated
- See if the Forex broker offers a minimum deposit amount
- What is the leverage that the broker offers
- What is the minimum contract size that you can trade
- Bonuses and the terms and conditions
- Deposit and withdrawal types as well as the terms and conditions
- Trading methods that are allowed by the broker
But remember, just because they suit me doesn’t mean they’d be a good fit for you.
You have to do your homework!
Forex Strategy Step #4: The First Thing You Need To Do Before You Start Trading
Finally, now that you’ve selected a Forex broker to trade with it’s recommended you first open a demo trading or a practice account.
I cannot stress enough how important this is!
Most Forex brokers offer unlimited demo trading account (but will be deactivated if not used for 30 days).
This is a good way to get acquainted with the Forex markets and also help you to understand your trading style (are you a scalper, an intra-day trader, swing trader etc) and approach (fundamental or technical analysis).
Make Money From Currencies In 4 Simple Steps
Forex trading is only as complicated as you make it!
If you don’t spend the time to understand what you’re doing, practice it, and get better each and every month, then you stand no chance in the Forex markets.
Follow my simple four step formula, and you’ll be trading in next to no time.
Remember, you need to:
- Understand what Forex is and how it works
- Master the basics of Forex trading
- Find a good Forex broker
- Practice! Practice! Practice!
Forex trading is a journey, not a destination, and if you’re committed to that journey you will come out on top.
Until then, here’s to profitable Forex trading.
The Money Lab