Forex Trading: A Complete Guide for Beginners

This article is a detailed guide on how to start Forex trading. So if you want to build a solid foundation, the tips and steps in this guide will be very helpful.

Let's get started.

What is Forex trading

In this part, I will answer the question, what exactly is Forex trading.

Since this is the foundation, every trader should know what they are actually dealing with.

And so …

Simply put, it is a global market that allows one currency to be traded against another.

If you think the euro will be stronger than the dollar, you can buy the EUR/USD currency pair and profit from the exchange rate difference.

How exactly to do it, you will find out further down in the article.

If you are traveling to another country, you will need the currency used in that country. You have to go to the exchange desk and exchange the currency you have for the currency of the country you are visiting.

You will notice that there are different prices, these prices are called exchange rates.

Suppose you are going on a trip to Australia and need to exchange £1,000. What you will actually do is buy £1,000 worth of Australian dollars.

Or in other words, you will participate in the Forex market, through a transaction to buy Australian dollars and sell British pounds.

The current exchange rate is 1,930 GBP to 1 AUD, which means you will get approximately 1,931 AUD in exchange for your 1,000 GBP.

Let's assume that you didn't spend the dollars and want to sell them to buy the pounds back.

This time, however, the exchange rate has changed and is now 1,850 GBP to 1 Australian dollar. You will receive 1043,78 GBP in exchange for your 1,931 AUD.

This change in exchange rates allows you to make a profit from Forex trading.

FOREX (Foreign Exchange Market) is the largest financial market in the world.

Forex is a global, decentralized market, meaning trades do not occur in a specific location, unlike the stock market.

The Forex market was created to serve international trade and investment, but it is currently used primarily for speculative purposes.

Speculators (traders) buy currencies with the hope of selling them later at a higher price and profiting from the difference, as in the example above.

The monthly trading volume of the world's largest stock exchange, the New York Stock Exchange (NYSE), is about 1.45 trillion dollars.

The chart below shows the monthly volumes of the four largest stock exchanges in the world.

By comparison, the daily volume of the Forex market alone is more than four times the monthly volume of the NYSE - $6.595 trillion.

As you can see the foreign exchange market is huge, but the turnover of 6.595 trillion dollars reflects all transactions. While the "Spot" market, where small investors and retail traders participate, is almost 2 trillion dollars.

To make it clearer, when you open a live account in an investment intermediary and make a transaction with a currency pair, you participate in the "Spot" market, which is part of the Forex market.

Besides its huge size, the forex market operates 24 hours a day, 5 days a week. Unlike stock exchanges, which close at the end of each business day.

Now you might be wondering:

Who trades in the Forex market and generates such volume?!

This is exactly what we will look at in the next part.

Let’s carry on …

Market Participants

It is important to understand who is involved in trading on the financial markets and what’s the reason behind it so that you know when to trade and when to stay away from the market.

Now I will introduce you to the main participants that generate the volume of the Forex market.

• Investment banks;
• Governments and central banks;
• Commercial companies;
• Investment funds;
• Retail traders.

Investment banks 

Objectively speaking, Forex is an interbank market, the structure of which is mainly formed by large investment banks. The rest of the market participants carry out their transactions through them.

As major market participants, banks have a lot of information and sufficient capacity to analyze this information and ultimately use it to their advantage.

If a major client of the bank plans to take a specific position, the bank will be aware of this and can benefit by aligning its strategy in the same direction.

Also, investment banks have substantial capital, which allows them to participate in the foreign exchange market purely speculatively for their own profit.

Here are some of the biggest investment banks offering forex trading:

• JPMorgan;
• Deutsche Bank;
• UBS;
• Citi;
• HSBC.

In the chart below, you can see the leading forex trading companies worldwide as of June 2023 by market capitalization (in billion U.S. dollars)

Governments and central banks

Like other participants, governments engage in the foreign exchange market to make international trade payments and/or actively manage their foreign exchange reserves.

Central banks are also regular players in the foreign exchange market.

They control the supply and demand of a currency by intervening in the market by buying or selling that currency. These market interventions are intended to assist the country's monetary policy.

Governments and central banks can influence the exchange rate through direct or indirect intervention. Direct intervention is when they directly buy or sell a currency.

However, they can also influence the price, through a statement made during their regular press conferences.

Better to stay out of the market during these events.

Learn more about the market participants and how to trade during news events by signing up for Trendline's free course.

Commercial companies

These companies participate in the foreign exchange market to support their business activities. 

They are not focused on speculative trading but need to buy and sell currency due to international trade of goods and services.

For example, an Australian company does business with the US and gets paid in US dollars. The same company, however, must pay salaries to its employees in the local currency - Australian dollars.

This is an example of selling US dollars and buying Australian dollars as a necessity arising from the nature of the business.

Investment funds

These market participants are solely focused on profit from speculative trading. 

They have substantial resources because individuals have invested in them rather than keeping their money in banks with nearly zero interest. Since their only goal is profit, they are willing to take any measures to achieve it.

Additionally, they have targets to meet, and their employees (fund traders) receive substantial bonuses if they meet or exceed these targets.

Their actions are driven by the pursuit of profit and are not aligned with fundamental economic factors.

The end of the year is a crucial period for these funds, as this is when target achievement is evaluated and bonuses are determined.

Retail traders

Individual traders are the largest group of participants in the Forex market.

However, they are not a driving force due to the lack of sufficient knowledge and resources. Over 80% of individual traders lose their funds when trading the financial markets.

Now you know what kind of people and institutions are competing against each other every day in the forex market.

Investment funds, banks, and companies have entire departments of analysts, traders, and risk managers. To go against them, you need serious preparation.

Do not think that in a few days or weeks, you will be able to learn everything necessary to trade in the financial markets. The next time your broker’s "account manager" calls you and says:

"You are an accomplished trader, deposit and start trading!"

Consider carefully how skilled of a trader can you be. Reflect on how long it took you to become an expert in your current field. However, there are steps you can take to avoid rookie mistakes.

In the following lines, you will learn exactly these steps.

What to trade

Brokers offer a large selection of Forex trading tools.

As a beginner trader, you should focus on the right assets for you. These are assets with higher liquidity and lower volatility which means lower trading fees (spread and commission).

Also, it’s wrong to think that the more instruments you analyze and trade, the more you will earn. For beginners, it’s actually the opposite. It is recommended to follow no more than 2-3 instruments.

Suitable instruments are the major currency pairs. Let me introduce you to the most traded currency pairs on the Forex market.

There are three types of currency pairs:

• Major currency pairs;
• Cross currency pairs;
• Exotic currency pairs.

Here you can find more information about the cross and exotic currency pairs:

>> Types of Forex Currency Pairs

What are these currency pairs?

Major currency pairs always contain the US dollar.

In the chart below, you can see which are the major currency pairs and the countries they represent.

These are the most traded and most liquid currency pairs on the forex market. The more often a certain instrument is traded, the higher its liquidity.

In the graph below, you can see the turnover of the foreign exchange market by currency and currency pairs. It becomes clear that the most traded are the major currencies, respectively the major currency pairs.

In conclusion, I can say that for beginners it is advisable to trade with fewer and more liquid currency pairs.

Now that you know what to trade, you need to understand when it is advisable to trade. Not all times are suitable for trading, some days and periods are dangerous and should be avoided.

You will learn when they are in the next part of the article.

When to trade

As I already mentioned, the Forex market is open 24 hours a day, 5 days a week.

However, it is not always active. There are times when there’s not much activity that you can take advantage of. You can trade and profit (or lose) when the price goes up. You can also trade when the price is in a downtrend.

There are times when liquidity is very low and the market does not move. Besides, lack of activity means that the spread becomes wider than usual.

Before we look at the best trading hours, let's check out what are the main trading sessions.

The Forex market can be divided into several trading sessions:

• Sydney/Australian Session;
• Tokyo/Asian Session;
• London/European Session;
• New York/US session.

The peak trading time is when we have two of the most liquid sessions overlapping.

• Asian - European (7 AM to 9 AM);
• US - European (1 PM to 4 PM).

*London time zone

The optimal times for Forex trading are when liquidity is high. During these periods, trading volumes are elevated, leading to larger market movements.

This doesn't refer to trading during news events, but rather during active market sessions. Novice traders should avoid trading during low liquidity hours, which occur from 11 PM to 7 AM during the Australian and Asian sessions.

Days to avoid as a beginner trader are:

• Every first Friday of the month - that's when the US jobs report comes out. Volatility rises significantly during this news;
• Economic events - Fed meetings, elections, various reports releases;
• Weekends - all holidays that cause a decrease in activity in large shopping centers. For example, the 4th of July.

Find out more about trading times in this article:

>> Forex sessions and the best time to trade

Important forex terms

• Margin - When trading Forex, you are required to deposit a small amount into your account to open and maintain a position/trade. This amount is called margin;
• Leverage - It allows you to manage a large amount of money by using a small part of your own capital and getting the rest from a third party (broker);
• Lot - Number of currency units traded. One lot may be equal to 100,000 base units;
• Spread - The difference between the buy and sell price;
• Pips - A unit of measure expressing the change in the exchange rate of two currencies.

You will learn more about pips and how to calculate them in this article:

>> What is pips in Forex trading

• Swap - In the context of Forex trading, this is a fee for carrying a position to the next day. The swap can be positive or negative, meaning that the broker can charge or deduct an amount from the trading account;
• Technical analysis - Method of forecasting the movement of financial assets by studying the previous price movements (historical data);
• Short Position - In Forex trading, this term is associated with a sell transaction;
• Long Position - In Forex trading, this term is associated with a buy transaction;
• BID price - The price at which you sell a financial instrument;
• ASK price - The price at which you buy a financial instrument.

What is Margin

If you want to trade $100,000, you don't need to have $100,000 in your account, just deposit $1,000 for example.

The exact amount depends on the terms of the broker you trade with and the leverage you use.

You can learn more about leverage in the following article:

>> What is leverage in the financial markets

Margin is neither a transaction fee nor the broker's commission. In financial markets, margin trading allows investors to trade with more capital than they actually possess.

When you purchase financial assets on margin and those assets appreciate over time, you can achieve a significantly higher return compared to trading solely with your own funds.

This is the advantage of margin trading.

To use a margin account, the broker requires you to deposit a certain amount of money to maintain open positions.

You can say that margin is a part of your account balance that the broker uses to maintain the open positions and to ensure that you can cover possible losses from the trade.

How exactly does this happen?!

Learn all about margin trading from our detailed guide:

Choosing a broker

One of the most crucial aspects of Forex trading is selecting a reliable investment intermediary.

Be cautious about where you open a trading account and deposit your money.

Check out the criteria a broker must meet to earn your trust.

• Regulations - Before choosing a broker to trade with, find out if it is regulated. ESMA requires every broker to describe on its website their regulatory authority and license number;
• Execution - Execution of Transactions. The broker must use high-tech networks and servers to ensure instant connection with liquidity providers;
• Fees - Spreads, fees, and commissions. Your broker should offer different types of accounts so that you can choose the most suitable for your style of trading;
• Support - Support and assistance from the broker's employees in multiple languages;
• Transparency - Access to legal information, documents, terms and conditions. Everything should be available to the trader. 

We have been trading with one of the best brokers in the financial space for the past 6 years!

During this time we managed to build a strong partnership with the broker and we are now over 400 traders trading inside of a community enjoying huge benefits.

Open a trading account with our partners and you will receive:

• Up to $1 cashback per lot;
• A full month of access to our Premium Telegram (daily analyses);
• Up to 70% individual discounts on our services;
• Access to our custom trading bots;
• Leverage of up to 1:500.

Demo account

If you want to learn how to trade successfully, you must open a demo account.

Here’s why:

With the demo account, you start trading immediately without risking your own capital. The demo resembles the real account to provide conditions as close as possible to real Forex trading.

You can test various trading methods and strategies completely risk-free, allowing you to develop correct and useful habits and avoid mistakes on a real account.

With this in mind, the virtual amount you trade with on a demo account should not exceed the actual amount you plan to deposit into a real account. The demo account is intended to help you become familiar with the trading platform.

How long should you spend trading on a demo account? Well, that’s an individual preference for everyone. Also, once you start trading on a live account, you can still use the demo to test other trading strategies.

After familiarizing yourself with the features and buttons of the platform, open a small live account to get used to the psychological side of trading.

Here are the answers to the most frequently asked questions about the trading platform!

MetaTrader 4/ 5 Trading Platform

Trading in the financial markets is done through a trading terminal, also known as a trading platform.

The platform is software that is used to execute orders (trades) of financial products through a financial intermediary (broker).

The MetaTrader 4 or MetaTrader 5 trading platforms are developed by MetaQuotes and intended for use by financial institutions engaged in brokerage activities.

MetaTrader 5 is the newer version of the platform, but just because you're using newer software doesn't mean you'll be a more efficient trader. Those who are accustomed to using MT4 are perfectly content with it and choose not to switch to the MT5 platform.

We as traders can use MetaTrader through an investment intermediary/broker.

Here are the most frequently asked questions related to the trading platform:

Where can I download the MetaTrader platform? 

You can download MetaTrader from the website of any broker that provides the platform to its clients. MetaTrader is available for PCs in Windows, Mac OS, and Linux versions.

For smartphones and tablets, MetaTrader can be obtained for iPhone/iPad, Android, and Huawei devices.

Keep in mind that due to the smaller screen size of mobile devices, they are not ideal for market analysis, particularly for beginners.

Using a mobile device, you can close a trade, adjust Take Profit and Stop Loss levels, or even open a trade, but it's best to do so after analyzing the chart on a larger display and understanding the market conditions.

How can I see my trading account?

After you install the trading platform, it will start automatically.

A window will appear on the screen where you have to enter username, password and server.

When you register an account, whether it's a demo or real account, the broker will automatically send the required information (name, password, and server) to the email address provided during registration. If you don't find it in your main inbox, please check your spam or other folders.

A common mistake is copying the account number and password directly from the email, including any extra spaces. This can prevent the platform from recognizing the credentials and connecting to the account.

Another frequent error is entering an incorrect server. If you encounter any issues, feel free to contact us for assistance.

How do I open a position?

You can enter a trade by clicking on the “New Order” button located at the top of your trading platform. 

After pressing the button, a window will appear where you need to enter the volume/Lot of the position, as well as the Stop Loss and Take Profit levels.

The trade volume should not be selected randomly but should align with the size of the Stop Loss.

This is a crucial aspect of Forex trading - MONEY MANAGEMENT!

More on money management, further down in the article.

You can take the trade without Stop Loss and Take Profit, but we recommend you always use a Stop Loss.

There is also an option to add a comment to your trade, such as what was the reason behind it. After entering the trade parameters, you have to click one of the buttons "Sell by Market" to enter a sell position, or "Buy by Market" to open a buy position. 

That’s it! Now you have an active position on MetaTrader 5.

In addition to opening trades with market execution, you can also place pending orders that are activated when a certain condition is met.

You don't need to stand in front of the trading platform all the time.

You can set a pending order to open and close a trade automatically when the price reaches a certain level. You can also place a Stop Loss that moves along with the price (Trailing Stop).

Learn everything about pending orders from the article "Types of Forex Orders and How to Use Them".

Where do I find the trading instruments? 

This is likely the most frequently asked question by novice traders.

When you install the trading platform, not all tools are immediately visible. This varies with each broker, but typically, the major currency pairs, some crosses, and gold are displayed.

As a result, beginners might assume these are the only available tools and start looking for another broker.

This is where the rest of the trading tools are hiding!

Click on “View” and then “Market Watch” or use Ctrl + M.

As shown in the image, not all tools are visible yet.

To add them, you need to right-click anywhere in the toolbox.

A window will appear where you need to click on the "Show all" button.

Now you can see all available instruments. 

Once you have a trading platform and account, the next step is to begin learning technical analysis.

"How do I perform technical analysis?"

In the next chapter, you'll discover exactly how!

Technical Analysis

Technical analysis is a method used to examine financial markets.

Its goal is to predict likely movements by analyzing similar changes in instrument prices from the past under comparable circumstances.

Technical analysts believe that future price movements can be anticipated based on historical data.

This approach can be applied to any market with available historical price movement data.

Charles Dow is regarded as the founder of technical analysis.

He adopts three basic principles of technical analysis:

• Price takes everything into account;
• Price moves in trends;
• History repeats itself.

Price takes everything into account 

The first principle assumes that the current price has already incorporated all expectations, rumors, news, and other influencing factors.

To demonstrate this principle, Japanese candlesticks are most commonly used. This technique, known as candlestick analysis, relies solely on Japanese candlesticks.

The aim is to forecast future price movements based on individual candlestick patterns or multiple candlestick formations.

Some of the most popular candlestick patterns are:

• Doji;
• Hanging man;
• shooting star;
• Hammer;
• Reversed hammer;
• Spinning Top;
• Bearish engulfing;
• Bullish engulfing.

As with any analysis, our recommendation is to look for the reason why a certain movement occurs and what is the logic behind it. If you are having trouble finding them, we have a solution for you!

At Trendline, we have developed an expert advisor that detects over 30 different candlestick formations and patterns. It applies to all markets and timeframes and can be easily integrated into any strategy.

Price moves in trends

This refers to trend movements.

When the price moves in a certain direction, the probability that it will continue its movement in the same direction is greater than that it will change its direction.

Of course, we are talking about probabilities here, and there always comes a moment when the trend changes its direction.

In the chart above, you can see a clear uptrend on the EURUSD currency pair. Price moves in one clear direction within the trend channel and gives us an entry signal on several occasions.

Once the market breaks out of the trending channel, this would be considered a trend reversal signal. However, seeing a potential breakout is not enough to confirm a full trend reversal. 

History repeats itself

Here, we are discussing all technical analysis patterns.

This principle is based on the assumption that if a certain pattern has appeared multiple times in the past, it is likely to occur in the same way in the future.

In conclusion, there are two main types of technical analysis: analysis of graphic chart patterns and analysis using technical indicators. You will learn more about these methods in our other articles.

Now, let's move on to the next method of analysis, namely Fundamental Analysis.

Fundamental analysis

Fundamental analysis is a method of analyzing price movements by examining economic, political, and financial factors.

In Forex trading, fundamental analysis focuses on the macroeconomic and political factors that can impact a country's economy and, consequently, its currency.

The goal of this analysis is to determine whether a given currency is undervalued or overvalued relative to its current market price.

Key data and events that can influence the price include:

• The general state of the economy;
• Import/Export;
• Interest rates;
• Gross Domestic Product (GDP);
• Unemployment rate;
• Political events;
• Referendums and others.

Different metrics can have different impacts on price, such as value and duration. When it comes to economic indicators (e.g. GDP), it is not important what the current data is, but how it has changed compared to the previous period.

If there is an increase in GDP compared to the previous period, this is considered a positive factor and should have a positive impact on the currency of the respective country.

In addition to economic, political, and financial factors, other events can also affect the price of the currency.

These are natural events.

Earthquakes, floods, volcanic eruptions, anything that causes damage and requires costs to cover it. This has an impact on the country's economy and, therefore on the currency itself.

After learning about the main methods of analysis - technical and fundamental, find out how to apply them in practice!

If you want to know how to trade and find trading opportunities, the next part is definitely for you!

Forex strategy

A Forex trading strategy is a technique for determining when to enter a trade.

The purpose of the strategy is to give a buy or sell signal by responding to certain conditions. The strategy can be based on technical or fundamental analysis. Forex trading strategies can be manual or automated methods of generating trading signals.

Manual strategies require the trader to stand in front of the computer and watch for a signal to enter a trade. Automatic systems are algorithms that analyse the market and generate signals automatically - without human intervention.

It is good to start with a simple strategy to get used to monitoring the fulfillment of the conditions it must meet. The most basic Forex strategy includes the Moving Average trend indicator.

How does the Moving Average strategy generate trading signals?

That's exactly what I'm going to describe now.

A trading signal is considered the crossing of two moving averages.

In the image above you see a crossing of a 20-period and a 50-period moving average. The red line is the 20-period (MA 20) and the green line is the 50-period moving average (MA 50).

You have an entry signal when:

• MA 20 crosses above MA 50 - buy signal;
• MA 20 crosses below MA 50 - sell signal.

As I mentioned at the beginning, this is a basic strategy and its purpose is to help build the right habits. Do not try this on a live account!

Get used to observing the market, following rules, and above all applying proper money management to your strategy.

For that matter, in the next chapter, you will learn the basics of money management.

Money management

It is crucial to accurately assess the risk on your account and for each individual position. Without understanding how to properly determine your lot size, achieving consistent results in trading is impossible.

Incorrectly calculating trade volume can turn a potentially profitable trade into a losing one. Moreover, mistakes in determining trading volume can undermine an entire strategy.

Conversely, proper risk management can improve the results of an otherwise suboptimal strategy.

Remember, always start with determining your Stop Loss size!

A common mistake, especially among beginners, is to leave setting the Stop Loss until the end. Before you open a trade, think about where should you position your Stop Loss order. Then measure the distance between the entry level and the level of the Stop Loss order.

Never move the Stop Loss closer to the entry just so you can open a trade with a higher lot size.

Just in case, I will say that the stop size is measured in pips.

You will learn more about money management in the following article:

>> Money Management: A Detailed Guide

Conclusion

Technically, trades are executed with a click of the mouse.

However, trading in the Forex market is like any other activity—it requires learning the basics to save time and money in the long run.

If there's one key takeaway from this article and trading in general, it is the importance of selecting a reliable broker and practicing good money management.

Be very cautious when choosing a broker. Contact us if you encounter any difficulties or suspect something is wrong with your investment broker.

Lastly, always consider the risk of your trades and set a Stop Loss!

Wishing you successful trading!