Are you interested in trading forex but you don’t have a clue where to begin?
You’ve probably heard about trading forex through ads on social media or from a friend, and you are asking youself how can you take part of this exciting investment quest and, you too, start making money online.
Well, you’ve come to the right place.
Nowadays, trading forex is becoming one of the most popular and easy ways of investing and making money online worldwide.
With a growing number of retail brokers, new traders are flooding the market everyday with no clue where or how to start in this industry.
This is why I decided to write this beginner’s guide to help you get your hands wet and start your trading journey in no time.
To start trading Forex and avoid getting scammed, you need to:
- Start learning the basics of trading: Forex101, Technical and Fundamental Analysis, etc…
- Design a trading strategy or trading system to trade the market,
- Have a strict risk management strategy to help protect your capital from losses,
- Work on your trading psychology by adopting a winner’s mentality,
So without further ado, let’s get started!
What is Forex?
Forex is one of the biggest decentralized market in the world where traders buy and sell currencies.
Forex is one of the most liquid, heavily traded, and most popular markets in the whole world with an average daily volume of around $5 trillion.
Currencies are traded in pairs in the FX market. In order to buy a currency you need to sell another currency to complete the transaction.
You can’t buy $1 with $1.
Currencies must be compared to each other to establish value, which is called the exchange rate.
Thus, you buy a currency and you sell another currency at the same time.
How can you start trading Forex?
With the advent of technology, you can trade any financial market in the comfort of your home. All you need is a computer and an Internet connection to access live market quotes.
To get access to live market quotes, you have to sign up for a trading forex account with a retail broker. The broker acts as a middle-man between you and the market to facilitate your transactions. You can’t trade directly the forex market that is why you need to choose your broker carefully.
Nowadays, the number of retail brokers is growing at a fast pace and not all of them are trustworthy. You need to do your due diligence and make sure the broker you are choosing is regulated. This means that the broker is not trading against you and if something bad happens, your money is protected.
What is the best way to learn Forex trading?
Trading forex is not an easy endeavor. If someone tells you otherwise, you should run because either he doesn’t know what he’s talking about or he’s trying to sell you something.
If you are serious about trading forex as a full-time trader, it’s important to have a deep understanding of the market dynamics and how fundamental drivers influence price movements.
This will help you generate educated trading ideas instead of pure gamble, manage your risk, and set yourself up for success in the long run.
As a beginner trader, it’s crucial to get a proper trading education. You can find a lot of useful information online.
Here are some interesting links that offer free trading forex education:
Most of the information you need as a beginner is available online for free. Once you get your head around the basics of trading forex, you can spend time mastering the art of technical analysis using a demo account.
In general, there are three types of analyses a trader can use to find trading opportunities: technical, fundamental, and market sentiment.
Many traders choose to trade forex using only technical analysis, others combine both fundamental and technical analysis. It’s up to you to choose what better suits your needs and aligns with your trading style.
Technical analysis uses historical price movements to predict future behaviors. The technical analysts believe that history repeats itself and that price will react the same way it did in the past. Many traders use chart patterns and indicators to identify patterns to trade.
Learn about trading forex using Supply and Demand strategy.
Others believe that fundamental data is what drives the currency market and for them to make money, they have to rely on fundamental analysis to generate trading ideas, then use technical analysis to time their entries. And not the way around.
Fundamental analysis can be quite challenging for some of you, especially, if you’re just starting out in this trading business. You might just focus on mastering technical analysis at first, and as you get more comfortable trading forex, you can add fundamental analysis to your trading plan.
Market Sentiment Analysis
Market sentiment defines how traders feel about the forex market. The sentiment becomes more bullish as general market consensus becomes more positive. Likewise, as the market participants begin to have a negative view about future market conditions, sentiment becomes bearish.
To learn more about the market sentiment analysis, feel free to check this article: Sentiment Analysis for Forex Trading.
Whether you choose technical, fundamental, or market sentiment analysis, remember that the process of learning is tedious and requires a tremendous amount of time to master.
There is no quick way or a magical course that will turn you a profitable trader in one night.
Take your time to learn and build a solid foundation to see results.
How long does it take to learn Forex?
The answer is: it depends.
Some people pick up things quicker than others. Normally, it takes about 1 to 3 months to learn the basics and understand the concepts and tools used to analyze a price chart.
Additionally, you need to spend between 3 months to 2-years trading on a demo account to practice what you’ve learned so far, to choose your trading style and to develop your trading strategy.
Once you start generating consistent profits on a demo account, you can open a real account and start live trading and hopefully you may start generating profits.
Remember, making profits trading on a demo account doesn’t imply getting the same results trading real money. When you trade on a demo account, you know it’s virtual money and losing trades doesn’t hurt the same way it does when you trade real money.
How much money do you need to start trading Forex?
The amount of money you need to trade forex is based on your trading style: are you a day trader or a swing trader?
If you are a day trader, I recommend opening a real account with at least $500, preferably $2000 if you want a decent income stream.
With a $500 account, and risking no more than 1% of your account on each trade ($5 or less), you can make $10 per day on average. With a $2000 account, you can risk up to $20 per trade, and therefore you can reasonably make an average daily profit of $40.
If you are a swing trader, you’re trying to capture longer-term moves and therefore, you need to hold positions during the market’s ups and downs before it gets to your target.
For swing trading, you’ll need to risk between 20 and 100 pips on a single trade, depending on your strategy and the volatility of the forex pair you are trading. Your risk-to-reward ratio should be at least 3:1, which means your profit is three times your risk.
If you start with a $1000 account, you can make about $50 to $100 per week depending on market conditions. Again, this is simply a theoretical estimate. Practice in a demo account for as long as you need before trading with real money, as that will give you a better idea of your income potential.
Is there a risk of losing all your money trading Forex?
YES. You can lose all your money and sometimes in a matter of seconds.
You need to be prepared to lose your money at any time if you don’t proceed with caution. Having a strict risk management plan can help you minimize your risk of losing money and help protect your capital for unnecessary losses.
Having a stop loss is vital because it not only helps protect your capital but also ensures you stay in the game.
So only trade money you can afford to lose.
Adopting a winner’s mentality
Many traders tend to skip this part as they think it’s boring or a waste of time. But they are wrong!
The reason why many traders fail in this business is because they don’t know how to control their emotions during trading. Emotions like fear, greed, and anger can easily destroy a trader’s performance in no time.
You can design the best trading strategy and you can use the most sophisticated trading platform to place your orders, but if you can’t control yourself when the trend is moving against you, you are doomed to failure.
You need to spend time building healthy trading habits that will help you succeed in this business. There are many great books you can read to help you develop a winner’s mentality to name a few:
Be aware of conflict of interest
The growing number of online brokers has created a huge gap between winners and losers. Statistically speaking, 95% of retail traders are losing money and only 5% are able to generate consistent profits.
This is big! And the reason behind this gap is the conflict of interest.
These retail brokers offer a large number of services to attract as many traders as they can. Brokers will do everything to get your $100 or $500 deposit. They will call you, send you emails, and even invite you to enroll in their free webinars just to give you the illusion that you are ready and have what it takes to make money.
In reality, the only one who’s making money is your broker, not you.
In fact, brokers want you to trade as much as you can to keep money pouring into their accounts. To do so, they let you open a high leverage account and allow you to start trading with very low capital. They even offer you their platforms for free to use. They know you are going to lose money anyway because the whole setup is doomed to failure. It is like learning to swim in the ocean by yourself surrounded by sharks.
If you are a beginner and you are interested in trading forex, this can be quite overwhelming, especially if you don’t know how the trading business operates. Many novice traders are brainwashed by social media gurus who claim to gain thousands of dollars trading forex in just one day. These gurus are not only lying to these poor beginners but also giving them useless knowledge and unrealistic expectations.
The key to your success in trading is education. Getting proper education will help you generate educated trading ideas that make money in the long run.
Trading Forex can be very profitable if you treat it like a real business. It requires dedication, perseverance and most importantly, hard work. If you are not willing to put the effort to learn and master trading, you need to stop right here because trading the forex market is not for you.
You can’t expect to become a profitable trader by watching YouTube videos or reading a book or two about technical analysis. It’s a long journey.
Also, you need to have realistic expectations. If you deposit $200 in a real account, do not expect to become a millionaire next week. The math doesn’t add up. Instead, think of trading as a long-term endeavor not a short-term get rich quick scheme.