Forex is a global decentralized currency trading market, which is the
largest liquid market in the world and one of the most popular for exchange
trading. We want to make you first trading steps easier and share info how trading
on the Forex exchange works, where to start for those who have never worked
with the exchange before, and what a beginner trader can count on.
HOW THE MARKET WORKS
The main currency here is the US dollar, and trade is based on currency pairs, for example, the euro and the dollar, the pound and the dollar and others. Currency pairs are denoted by the ratio of the base (traded) currency to the price currency — for example, EUR/USD. The price itself is indicated by a fraction, for example: 1.1015 — this means that the cost of 1 euro is 1 dollar and 10.15 cents.
In addition, it is worth noting a purely psychological fact: many novice traders perceive Forex trading as gambling. However, trading on the exchange is not a casino or a bank. Profit here does not depend on luck and is not guaranteed, therefore, it requires a cold calculation and certain knowledge, most of which can be obtained only on practice.
WHERE TO start?
1. Choose a broker
The very first step that a future trader — a person buying and selling assets on an exchange — should take is to gain access to it. Since an individual cannot directly trade on the exchange, it is necessary to use the services of a broker — a company that deals with all related issues: from opening an account for trading to directly buying and selling assets on behalf of a client.
We wrote about how to choose a broker in one of our previous materials. Another important thing that you should consider is whether the broker works with Forex, since there are companies that do not carry out activities in this market.
2. Open an account and fund it
The next important step is to open a Forex account that you will use for trading. By the way, there are two types of accounts, and both may be useful for beginners.
- A real account is a full-fledged trading account with real funds you use to buy assets and those received from the sale of foreign currency.
- Demo account is a separate account with virtual funds that can be used for virtual trading at real, current prices. The essence of the demo account is to help a novice trader get accustomed to the exchange without losing real money. More experienced market players are advised to switch from a demo to a real account only after a few weeks of active and successful trading.
You can fund your account in various ways, while the amount of funding depends on the conditions established by the broker. It can be either “full-fledged” accounts requiring a few hundred or thousand dollars, or the so-called cent accounts, the minimum allowable amount on which can still be as little as $5-10 in some cases.
3. Decide on the type of management
There are three types of management, and each of them has its own advantages:
- Self-directed trading is a “classic” trading method in which you monitor the market situation and make decisions about buying/selling currency based on your own experience. This is the most profitable method, but it requires full involvement and often a lot of time.
- Automated — in this case, all operations are carried out by a robot, a special software operating according to a given algorithm. It does not require the presence of a person, but it cannot give the same level of income, since it is difficult to select the perfect moment for sale.
- Trust management is an additional service of the broker. When you use it, you transfer the right to trade to a professional trader for a small percentage of each transaction, which makes the trader also interested in getting the maximum profit.
4. Choose a strategy
Strategy is a method of buying and selling assets. There are many strategies. There are three basic strategies for beginners, depending on the time and frequency of trades.
- Short-term trading (scalping) — frequent trades for small amounts. Despite the small profit from each trade, the total profit from such trading can be very impressive. The main drawback here is the need for constant monitoring of the market, but for beginners, this particular option can be considered ideal.
- Medium-term — resale of the currency within a few days or weeks. The time spent on trading here is less, but more theoretical knowledge and the ability to use statistics are required.
- Long-term — resale of assets once every several months. Trade with large amounts. It requires the study of global trends and a serious research.
5. Choose a platform
The most modern and efficient method of trading on the exchange implies the use of special trading platforms that transfer electronic orders quickly via the Internet. So, the most important platform parameters are command processing speed, additional features (for example, various statistical data and charts) and the availability of platform versions for different OSs (for example, an application on a smartphone, in order to track changes in the market and carry out transactions on Forex at any moment of time).
There is a huge number of platforms today, but novice traders can be advised to start working with one of the largest and most famous — MetaTrader (or just MT). Currently, two current versions of MetaTrader are used simultaneously — MT4 and MT5. Both of them have mobile versions, provide detailed, dynamically changing statistics and allow you to work with trading and demo accounts.