Forex — which is shorthand for “foreign exchange,” but better known as world currencies — is the largest and most liquid market in the world. As such, forex trading can be a daunting experience that requires proper groundwork. However, this competitive market is filled with outstanding trading opportunities — but only if you have the knowledge and skill to seize them. With that in mind, here are a few tips on how to educate yourself as a beginner:
Find the right broker and trading setup
Before anything else, you need to pick a forex broker to give you access to this financial market; this fpmarkets review will get you started. Just remember, whichever broker you ultimately decide to go with is of great importance, because that’s where you execute the trades and store your capital. For example, many licensed online brokers authorized to operate by the Securities and Exchange Commission can provide you with the best trading platform for beginners, including Webtrader and MetaTrader4 (MT4). The MT4 platform is geared for beginners; it’s highly customizable, intuitive and easy to use. Geared with analysis tools, more than 80 pre-installed indicators, and multiple chart setups, MT4 offers the perfect opportunity for beginning traders to test strategies — not to mention learn and grow!
Learn in small steps
Because there are so many things to learn, research and consider before trading currency pairs, it’s best to take small steps, by creating a new plan each time you open a trading position. Here’s what that plan should take into account:
Have clear trading sessions, clear time frames. Since you’re just starting to trade forex, you probably don’t have all the time in the world to watch the market, which is open 24/5. Learn when to look at the market and which trading session is the most convenient for you. The main trading sessions are:
- European session: 6 a.m. to 5 p.m. (GMT)
- US session: 1 p.m. to 9 p.m. (GMT)
- Asian session: 10 p.m. to 5 a.m. (GMT)
Knowing when to look at the market, and which time frames to analyze can help you make informed decisions and save time. Some brokers grant access to nine different chart time frames: Monthly chart, Weekly chart, Daily chart, 4-hour chart, 1-hour chart, 30-minute chart, 15-minute chart, 5-minute chart, and a 1-minute chart.
A thorough analysis of relevant factors. Let’s assume you want to trade the US dollar against the Canadian dollar. Therefore, your analysis needs to focus primarily on two countries: the US and Canada. This requires checking the economic health of both countries, as well as the value of their currencies, through variables like GDP, the unemployment rate, and the difference between their interest rates. Official economic releases and news of political nature are also crucial, because they have the power to move the market against you.
A consistent trading strategy. When deciding whether to buy or sell, fundamental and technical analysis should be part of your plan. Technical analysis represents the study of price charts and trading indicators; while fundamental analysis represents the study of economic data. You can combine the two methods or search for a trading strategy that suits you. The best brokers know the importance of this.
Risk management techniques. Most traders focus so much on when and how to enter a trade, too often disregarding how important it is to know when to exit. The reality is, it’s important to always remain cautious by minimizing losses and maximizing gains. You can do this by placing orders with your broker. The best brokers will offer a range of trading orders and settings including limit-, stop-loss- , and market-orders to protect you against volatile trading conditions; they also offer negative balance protection to ensure you never lose more than what you have in your account.
Stay curious and informed
Knowledge is power in forex trading — so the more you learn, the more you’ll polish your skills. Stay curious and join trading forums, Facebook groups or other social-media communities. In this high-tech era, hundreds of great book about all aspects of forex trading are just one-click away. Above all, take advantage of the educational materials your broker puts at your disposal. The best brokers will have education resources that cover everything you need to know as a beginner.
True, you can hone your forex skills on your own; but there’s a lot to learn. Make sure you do it the right way.
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