There are many different ways to learn forex trading. This article provides step-by-step instructions for beginners. If you happen to be a more experienced trader looking for more success, reviewing the steps, and even going back, can be helpful.
Step 1. Learn the theory
If you’re totally new to foreign exchange trading, you should learn about this market first. You need to understand the factors that influence forex prices such as interest rates, budget deficits, trade balance, and political events in different countries.
You also need to know the mechanics of forex trading. When you trade, you actually sell one currency to buy the other. You can trade forex at different sizes (lots). A standard lot represents 100,000 units of currency, while a mini lot stands for 10,000. There is also a micro lot which is 10,000 units.
What’s more, you need to know what are the major and minor currency pairs. Major currencies are more actively traded and the spreads are lower. Moreover, you need to know when the most trading activity takes places for various currencies. It will depend on the time zone. (Trading after hours can be expensive as spreads get wider.)
As an example, the most active trading in Japanese Yen and Australian Dollar happens during daytime in Asia. On the other hand, when it comes to US Dollar and Canadian Dollar, the most action happens during North American daytime.
It gets more complicated when it comes to currency pairs such as US Dollars and Japanese Yen. Experienced traders know which hours are most active for the currencies they trade.
Step 2. Get a practice account
The next step is to get a free demo account. These accounts are offered by many online forex brokers for free. With these accounts, you get to trade with virtual money. And this is a great pay to practice and get hands on experience with forex trading.
By getting a practice account, you will not only learn how trading works, but you’ll also get to know a forex trading system. You’ll learn ways to enter and exit trades, and you’ll get to see analyst research and charts. Learning a charting system takes time and a demo account provides an opportunity to do it.
Furthermore, by playing with virtual money, you will see how dynamic the forex market is. At the beginning, you’ll make many mistakes, but will hopefully learn from them without losing a penny.
Step 3. Start real trading by making small bets
Once you learn plenty about the forex market, it will be time to make real bets on currencies. As a new trader, your priority should be to avoid losing your capital. Thus, you should start with only small trades on which you’ll put stop orders. (Stop orders are a way to avoid being completely wiped out once a volatile move in currency markets takes place.)
You should move to larger trades once you can succeed with small orders. There’s no reason to go into big trades if you can’t make money on small bets. Otherwise, your account will get wiped out. If you can’t succeed with small trades, go back to Step 2 (demo account) or even Step 1 (learn more about theory.)
Succeeding at forex trading isn’t easy. You must continue to learn and practice even more. The different ways to learn forex trading we outlined should help you in your forex trading career.