Learning how to successfully trade Forex can be complicated for beginners. Most people want to get rich overnight, no matter how unrealistic it may sound.
The world of Forex trading can be a little overwhelming, especially if you are new to the game and don’t know the rules yet. You need to dip your toes in before you go any deeper.
The good news is, we’ve compiled a list of top Forex tips for beginners to help you along your journey. If you already have experience with Forex trading, it’s always good to remember the basics.
Understand Basic Forex Terminology
The type of currency you are spending, or getting rid of, is the base currency. The currency that you are purchasing is called quote currency. In forex trading, you sell one currency to purchase another.
The exchange rate tells you how much you have to spend in quote currency to purchase base currency.
A long position means that you want to buy the base currency and sell the quote currency. In our example above, you would want to sell U.S. dollars to purchase British pounds.
A short position means that you want to buy quote currency and sell base currency. In other words, you would sell British pounds and purchase U.S. dollars.
The bid price is the price at which your broker is willing to buy base currency in exchange for quote currency. The bid is the best price at which you are willing to sell your quote currency on the market.
The ask price, or the offer price, is the price at which your broker will sell base currency in exchange for quote currency. The ask price is the best available price at which you are willing to buy from the market.
A spread is the difference between the bid price and the ask price.
As with every new practical learning activity, trading requires you to start with the basics and move slowly until you understand the playing field. Start by investing small sums of money and keep in mind that slow but steady wins the race.
Learn how to Calculate Profits
A pip measures the change in value between two currencies. Usually, one pip equals 0.0001 of a change in value. For example, if your EUR/USD trade moves from 1.546 to 1.547, your currency value has increased by ten pips.
Multiply the number of pips that your account has changed by the exchange rate. This calculation will tell you how much your account has increased or decreased in value.
Take Control of Your Emotions
Don’t let your emotions carry you away.
It can be very difficult at times, especially after you’ve experienced a losing streak. But keeping a level head will help you stay rational so you can make competent choices.
Whenever you let your emotions get the better of you, you expose yourself to unnecessary risks.
Unless you are amazingly lucky you can’t expect to close 80% of your trades profitably or turn a $500 trading capital into a $10,000 trading capital in six months. With those kind of expectations you’re simply setting yourself up for disappointment, frustration and failure. (unless you’re very, very lucky).
Try to look at things realistically right from the start. Determine an attainable percentage of winning trades considering your strategy and experience. Ask yourself how much time you can spend on trading and learning. When you have a clear view of your trading tools and conditions, you will find it much easier to work towards a profitable trading strategy.
For example, suppose you’re a day trader with a trading strategy where you risk, on average, 15 pips to win 30. After doing about 200 trades, it turns out that 50% of your trades reached their profit target of 30 pips; the other 50% of the trades went sour and triggered your stop loss. So you’ve won 100 x 30 pips = 3,000 pips and lost 100 x 15 pips = 1,500 pips, for a gross revenue of 1.500 pips total. Gross revenue, because you still have to deduct the spread, i.e. the transaction cost you pay your broker, remember? Let’s say the spread is 2 pips per position, meaning your 200 trades costed you 400 pips. Your net revenue then, was 1.100 pips over 200 trades, or 5.5 pips per trade.
Of course data on 200 trades isn’t enough yet to be of statistical significance, but at least it would give you something to work with: on average, each trade nets you 5,5 pips.
Choose Your Broker Wisely
Choosing the right broker is half the battle. Take your time to check reviews and recommendations. Make sure the broker you choose is trustworthy and suits your trading personality.
Remember, there are lots of fake brokers out there who will only stand in your way. Go for an authorised broker with a licence.
Have a Trading Plan
As the old saying goes in this industry: “Fail to plan and you plan to fail.”
Any successful trader will tell you that if you don’t follow a plan systematically, you’re bound to be unsuccessful.
Follow a Forex Trading Strategy
While the idea of successfully trading on whims and hunches might sound good, the reality for most traders is far from that.
Develop a forex strategy. Test it thoroughly. Make adjustments. Then repeat.
Use a Demo Account before you commence trading hard
Using a demo account will make you familiar with a trading platform while it will help you ‘test’ your Forex broker in terms of delays and trading stability. A demo account will also help you measure your trading performance before trade for real money.
Tread Softly into Unknown Territory
Don’t make the mistake of most beginners. For example, they hear some rumors and invest all they have in the hopes of profiting quickly and effortlessly. As a beginning trader start small. Humbly learn all you can about a few instruments before you dive in.
Determine your Margin
Depending on your broker’s policies, you can invest a little bit of money but still make big trades.
For example, if you want to trade 100,000 units at a margin of one percent, your broker will require you to put $1,000 cash in an account as security.
Your gains and losses will either add to the account or deduct from its value. For this reason, a good general rule is to invest only two percent of your cash in a particular currency pair.
Focus in a couple of Forex Pairs not in many
If you are a beginner It is much better to concentrate on a couple of FX currencies than try to cover the whole Forex Market. Focusing will provide you with better information and increase your potential of produce trading profits in the long-term.
Use always a Stop Loss Strategy
The absence of a stop-loss strategy is the most common mistake of a beginner. When you trade a market using leverage without a stop-loss is like driving a highway without having brakes.
Don’t Rush in Trade with Real Money
If you’re new to trading, don’t rush in to trade with real money, unless you can afford to lose them, because you will most certainly do, if your trading experience is less than 3 months. here are debates as to whether it is better to stick to demo trading or open a small live account for learning purposes. The answer is: it depends on your financial situation. If you can allow to lose the money in trading (because you will lose, please don’t wear pink glasses and think that you’ll be immune from this, you won’t be, no beginner does): if you want to feel what real trading feels like, when the real money are at stake — that’s a tremendous experience and you can certainly open a a small account with a Forex broker. If, however, you’re not comfortable with losing $100-200 is over a week or two (some may even do it faster), then stick to demo trading until you’re ready.
Begin with Small Sums, Increase the Size of Your Account through Organic Gains, not by Greater Deposits
One of the best tips for trading forex is to begin with small sums, and low leverage, while adding up to your account as it generates profits. There is no justification to the idea that a larger account will allow greater profits. If you can increase the size of your account through your trading choices, perfect. If not, there’s no point in keeping pumping money to an account that is burning cash like an furnace burns paper.
A great Forex tip to follow daily is to take time away from your computer, especially during stressful trading sessions. When you have several computer windows open and multiple data streams to analyse, you can naturally feel pressured.
In this case, it’s better to take a break and walk away for a while. Give yourself some time to collect your thoughts. When you return to your desk, you’ll be calmer and more able to focus.
Analyse Your Trades
Another daily Forex tip to follow is to keep a journal of your trading activity. This will help you monitor your performance and find patterns in your trading.
Basically, it’s easier to learn from past mistakes when they are jotted down. Keeping a journal also improves your discipline. Be sure to write down everything and be honest about it, as you have to be your own biggest critic.