Forex Trading For Beginners

03-Aug-2023

5 Trillion Dollars. That is the amount of daily transactions on the Forex Market. This makes it one of the largest Markets in the World. It's favoured and traded by both institutional, professional and amateur traders. In very basic terms; Forex is an abbreviation for Foreign Exchange, and you trade (i.e. exchange) one currency pair for another.

What is Forex?
Why Trade Forex
How Much Do I Need to Trade Forex?
CFD trading: Unlock Market Potential
What is a Stop Loss?
No Slippage: Trade Without Delays
Leverage Trading

Forex Currency Pairs Explained
What is the Bid and Ask Price?
What is Spread in Forex?
Forex Pips
What to look for when choosing a Forex Broker
Choosing the Right Forex Trading Platform

Forex - very large and liquid market

If you've ever exchanged your local to a foreign currency at an airport or forex counter, then you have had a bit of experience in forex. You probably noticed how the buying and selling rates fluctuate over time, making a particular currency cheaper or more expensive.

To trade forex, you first need to understand what makes these rates change. Simply put, the exchange rate of the currency reflects the relative strength or weakness of its economy compared to others. Currency appreciation is usually spurred by improving economic performance while currency depreciation is typically caused by slowing economic activity.

Forex traders tend to pair a strong currency with a weak one in order to see a lot of movement in price action. If you are predicting or seeing strong activity for a particular economy, then you should buy that currency against another one whose economy is weaker. To learn more about these, visit the section on Economic Indicators. Monetary policy changes and central bank biases also come into the picture, but let's save that for a more in-depth lesson on fundamental analysis which you can find here.

What is Forex?

Forex, or Foreign Exchange is a market on which a person trades currency pairs. These are usually displayed as EUR/USD and you have two choices – buy and sell. Based on our example of Euro and U.S. Dollar:

What happens when you buy a Forex Pair

You are buying EUR and Selling USD

What happens when you sell a Forex Pair

You sell EUR while buying USD

You will also usually see a whole number and a decimal close to the currency pair; this is known as the rate. In our example this number expresses how much USD a single EUR is worth.

That’s the simple part. With an intuitive platform, you could trade single currencies all day without breaking a sweat, but there’s more to Forex than trading single currency pairs.

There are some considerations when trading on the forex market:

Volatility

This is something that to their detriment many beginners overlook, currency markets move frequently and rapidly. Knowing what affects these markets and what times volatility is higher can help you avoid these movements or even take advantage of them.

Correlations

Some currencies have strong connections to other countries’ economies or even other commodities (such as Oil and Gold for example). This can be either a positive or negative correlation.

Macroeconomic Events

Monetary Policy Announcements, political and economic events can affect the entire Forex market or just a few currencies. This can overlap with the previous point correlation especially when USD is involved, as many currencies are pegged (tied) to it.

Much like any other investment vehicle you will come across terminology that you may be unfamiliar with. You can find a list of the most common Forex Trading terms for beginners in easyMarkets glossary.

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Why Trade Forex?

Forex is favored by multiple types of traders from professional to complete beginners. It is a diverse market; most brokers offer an extensive list of currencies and each currency is affected differently, allowing you to skirt risk when things get volatile or seize opportunity from multiple instruments. One currency might be jumping around, and another might not even move from its previous day’s price (or rate).

Another reason people favor the Forex markets is because of its volatility; although this increases risk, it also increases opportunity. This is especially true if the strategy you are using depends on making trades throughout the trading day.

The high volume of transactions in the forex market allows traders to buy and sell without any delays caused by a lack of buyers or sellers. Forex is also a purely global market. It is wide reaching and diverse, meaning when certain currencies are volatile, others are not. Time is also a benefit; the forex market is open 24 hours a day, 5 days a week. The forex market opens in sessions:

Market/Session	GMT
Sydney (Australia) Open	9.00 PM
Sydney (Australia) Close	6.00 AM
Tokyo (Japan also known as the Asian Session) Open	12.00 AM
Tokyo (Japan also known as the Asian Session) Close	9.00 AM
London (UK also known as the European Session) Open	7.00 AM
London (UK also known as the European Session) Close	3.00 PM
New York Open	12.00 PM
New York Close	9.00 PM

To see specific instrument trading hours please refer to: easyMarkets trading hours.

Volatility increases during session overlap and during the first hour of sessions opening. You can usually expect high volatility during the London/New York session overlap as they account for the largest volume of transactions on the Forex market.

Of course, volatility is also affected by political and policy changes which can either exaggerate or mitigate opening and overlap times. In certain cases opening and closing of markets can be marked by significant price movements, running on the momentum created by the announcement, event or report.

For example, if the market is generally cautious due to certain geopolitical changes or threats like in the case of the China-U.S. trade war, currencies might not be as mobile. Another factor that may boost volatility is market-affecting news released on the weekend, causing a currency to jump upwards or substantially drop. This is effect is also called “the weekend gap”.

Volatility: Opportunity & Risk

There are numerous ways to trade Forex CFDs but most traders prefer day trading for a few reasons: as mentioned previously current events and news can significantly move markets. This increases volatility, and because CFDs give you the ability to trade both upwards and downwards movements, some traders actually use this as opportunity. Of course, volatility causes prices to move rapidly and in some cases unpredictably, increasing risk.

How Much Do I Need to Trade Forex?

Another reason FX trading is so popular is its low barrier of entry. You can open an account and trade for just $25 with easyMarkets. easyTrade - exclusive to easyMarkets - is also a good way to control your initial cost, as it allows you to set and lock your maximum risk (which is the amount you could potentially lose if your trade goes against you). Want to give it a try? Click on the button below.

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CFD Trading: Unlock Market Potential

CFDs are unique financial instruments favored by investment professionals and institutions, due to their flexibility. CFD Shares, Forex, Commodities and Cryptocurrency allow you to trade both upwards and downwards trends.

Another benefit of CFD trading compared to other types of trading is the availability of trading tools and conditions such as negative balance protection, guaranteed free stop loss, take profit and leverage (which increases the size of your trade but can also increase your risk). These tools and conditions are available at no additional cost to the client on easyMarkets proprietary platform and app.

Many institutional and professional level traders use leverage because it allows for fewer funds to be used to open a bigger trade. This means that they can open multiple positions with the same amount that would potentially be needed for an unleveraged position.

What is a Stop Loss?

Stop loss is another reason Forex CFDs are popular amongst serious traders. If you aren’t familiar with this term, stop loss is a tool that protects you against runaway losses that can impact your other trades.

When the market moves against a trade and margin limit is reached, open trades start closing until the margin necessary is covered. With stop loss you set a price level that you choose, and your trade will close at that point if you have adequate margin, but only when trading on easyMarkets platform and app is this guaranteed because of no slippage.

No Slippage: Trade Without Delays

easyMarkets offers trading without slippage on its proprietary platforms. This means that the rate you open the trade is the rate your trade is executed. This is important because in non-CFD trading, your trade may execute at a higher or lower price.

This is because when selling or buying non-CFD currencies, transactions need to be “matched”, i.e. if you are selling, a buyer or buyers need to match your trade. If someone (or a group of people) isn’t trading the opposite of your trade, you have to wait until they do.

Some CFD brokers do not offer zero slippage guarantee, so this is another distinct benefit you have access to when you trade on easyMarkets platform and app . Trading with slippage can cause unforeseen costs or smaller profits because the trade opens or closes at a different rate than you wanted it to be executed. This effect becomes especially amplified during high volatility.

Leverage Trading

Another reason the forex market is popular is due to the availability of leverage. Leverage is a trading condition that allows the trader to increase the size of their trade. Of course, as the size of your trade increases so do your margin requirements and risk. Because of the increased margin requirements, a smaller negative move will cause your trade to close.

Forex Currency Pairs Explained

In forex trading currencies are usually expressed in pairs (sometimes referred to as crosses). They are usually displayed as:

EUR/USD

In the pair above EUR is called the base currency and the USD is the quote currency. The base currency is 1 and the quote currency is how much it’s worth in the base currency. For example if EUR/USD is 1.08, it means 1 Euro is worth 1.08 U.S. dollars.

Majors, Minor and Exotic Currency Pairs

Currency pairs are usually separated into major, minor and exotic currency pairs. Major currencies always involve the USD and one of the following:

Euro (EUR)

British Pound (GBP)

Swiss Franc (CHF)

New Zealand Dollar (NZD)

Japanese Yen (JPY)

Canadian Dollar (CAD)

Major currency pairs are favored by new traders because of their high liquidity and large amount of available data. News outlets frequently cover events which affect these currencies. Also, many commodities including Oil, Corn, Cotton (to mention a few) and most commercial and precious metals are bought and sold in USD.

Minor currency pairs include the currencies in the list above, but not the USD. For example; AUD/JPY, EUR/CHF, EUR/GBP are minor pairs. Minor pairs also offer large amounts of data, since most of the currencies involved are some of the market’s most popular.

Exotic pairs involve currencies from developing countries and a major currency, such as USD/MXN. These pairs can have less liquidity, depending on which currencies are involved, and are usually considered to be significantly more volatile than major pairs or crosses. As such, exotic pairs are preferred by more experienced traders to round off their portfolio with higher risk trades.

What is the Bid and Ask Price?

Ask and bid, also called offer and bid, is a way prices are quoted in Forex and certain other types of CFD trading. When trading two parties are involved, the seller and the buyer. The bid price is the maximum value that a buyer is willing to “purchase” the CFD and the ask price is the minimum value that the seller is willing to “sell”. When those two rates match, a trade is made.

The difference between these two rates or values is known as the spread. Floating spread brokers usually change this amount depending on market liquidity, which can make calculating your profits and losses challenging and can increase costs. easyMarkets offers fixed spread trading with CFDs, making pricing transparent and easy to calculate.

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What is Spread in Forex?

As mentioned above, an instrument’s spread is the difference between bid and ask price. In the case of FOREX trading when we are dealing with a pair, for example EUR/USD, the spread is the difference between the price at which your broker is willing to buy or sell the other side of the pair you are trading.

That may seem a little complicated, so to simplify: EUR is the base currency and USD the quote currency in EUR/USD. When you sell a pair the broker is the buyer of the base currency and when you buy they are the seller of the base currency. The spread is usually calculated in pips and for most pairs it is 0.0001 of the price quote.

Continuing our example, if EUR/USD was 1.1800 and moved to 1.1802 that means it would be a 2 pip price movement. Expanding on that, if your spread is 2 pips, and you “bought” (i.e. expected the pair to increase in price) then anything above that is profit.

Inversely if you were “selling” the pair, if the price went from 1.1800 to 1.1802 then you would incur a 2 pip loss.

Spreads are important because it is what you pay when trading – and you need to make sure if the spreads you are trading with are floating or fixed. Floating means that spreads will increase during market volatility, before and after news events or during geopolitical turmoil (which cases volatility). Fixed spreads on the other hand, when offered by a creditable broker, never change. As mentioned above, this makes calculating costs much easier.

Forex Pips

Pips are the way price movements are calculated instead of using 1/10000th of a currency pair’s value. Most currencies are quoted with four decimal points whereas JPY pairs are quoted with just two. This is why a pip is different when calculating currency pairs involving JPY.

For example, USD/JPY is displayed as 111.25. A one pip movement upwards would be 111.26, so a pip would be 0.01 instead of the typical 0.0001.

Example 1:

Example 2:

How profits and losses are calculated

Next up, you have to gain a solid understanding of how profits and losses are calculated. Currencies are traded in pairs, with changes in exchange rates often referred to in pips, which are the last few decimal places of the quotation. These are then multiplied by the lot size or the number of units that you bought or sold. If the math already sounds complicated, don't worry because brokers typically provide profit/loss calculators on their platforms or websites that you can easily use.

From there, you can delve into technical indicators to supplement your economic analysis. Most forex platforms offer a wide range of technical indicators you can apply and customize, depending on your trading strategy, on top of regular economic updates that you can use in gauging which currencies are stronger or weaker. These indicators can give you an idea of whether trends are set to continue or reverse or if support and resistance levels might hold or break.

Of course, where there is opportunity, there is also risk. Risks of losing the money you’ve invested into your trading account on each trade. The markets are unpredictable and can move very fast, so if you want to trade forex now it's important to have a risk management plan in place before depositing any funds or taking any forex trade setups. If it's your very first foray into trading, we suggest you start with a demo account first to get a feel of its trading platform, understand how orders are executed, and put your trading strategy to the test.

What to look when choosing a Forex Broker

This can seem daunting when you start trading. Here are few things that you should look for when choosing your first forex broker:

Regulation

Finding a credible broker is one of the first considerations when you decide to start trading. Check to see what kind of licenses and what regulatory body your prospective broker reports to. This ensures that no matter what happens, you and your funds are protected. easyMarkets is regulated in both the EU and APAC, so we can accept clients from across the globe!

Trading Conditions and Execution

Trading conditions and execution can affect your costs, raise your bottom line and cut into your profits. Here are few items to look for to avoid unnecessary costs:

Transparent pricing

Negative balance – this is especially important to avoid potentially owing a broker if you’ve incurred a loss.

Fixed spreads – this ensures that your spreads never change unexpectedly, increasing your costs.

No slippage – this means that your trade will be executed at the price you wanted it to.

Cost of Trading

Price transparency is important when trading forex. Choosing a broker with fixed spreads ensures that your cost won’t increase when risk and opportunity are at their highest; during volatility. easyMarkets offers no slippage, fixed spreads, and never charges hidden fees.

Types of Instruments

Having multiple markets to choose from when trading can help you avoid risk or better seize opportunity. Many professional traders also use different markets or instruments that move inversely (or approximately inversely).

For example, when volatility (and risk) increases in the currency market, usually due to policy announcements or geopolitical events, many traders turn towards Gold, which tends to increase in value due to demand.

With easyMarkets offerings you can trade over 200+ instruments across diverse markets: Oils and energy commodities, currencies, metals, commodities, indices, cryptocurrencies (which you can trade over the weekend too with easyMarkets) and shares.

In fact, easyMarkets offers shares from some of the world’s biggest markets: U.S., Europe, Hong Kong, Australia and Japan. This allows you to trade shares around the clock, five days a week.

Trading and Risk Management Tools

easyMarkets offers multiple trading and risk management tools including guaranteed free stop loss, and negative balance protection. easyMarkets also offers unique and exclusive trading tools:

dealCancellation

dealCancellation allows a trader to undo a losing trade within an 1, 3 or 6 hours for a small fee*. This lets you protect yourself against rapid and unexpected reversal of price, an unforeseen geopolitical event or even a mistake. Undo a trade and recover your investment.

Freeze Rate

Freeze Rate gives you the ability to pause live rates momentarily to open or close a trade at the “frozen” rate.

easyTrade

easyTrade* is a unique options-based trading ticket that lets you set a maximum risk amount without capping your trade’s potential. You can open an easyTrade in just three steps. Choose your trade size (which is also your maximum risk amount), the duration of your easyTrade, and decide whether the rate will go up or down. It’s user-friendly, intuitive and easy to learn for new traders.

Learning Resources

Expand your trading knowledge with easyMarkets Academy, which features easy to understand video lessons and knowledge tests that give new and experienced traders a great way to find out if they understood what they learned or if they would like to revisit a lesson.

easyMarkets website also features an exhaustive Forex Trading education library with videos, articles and free downloadable e-Books.

Platforms Offered

Choose your favorite device and easyMarkets is very likely to support it, with its App which is available on Android and iOS. Traders can also use our web-based platform that integrates Market News, Analytics, an Economic Calendar, Inside Viewer (which shows you if other easyMarkets traders are buying or selling), Trading Signals and Trading all in one window for ease of use . easyMarkets also offers forex trading on the popular MT4 platform.

Customer Support

Since our founding in 2001 client satisfaction has been one of our main objectives and priorities. Our clients have highly rated our customer service on Trustpilot with a five-star 89% Excellent score.

Our multilingual international team of customer service specialists support Japanese, German, Spanish, Polish, Arabic and English-speaking clients.

Deposits & Withdrawals

Another important consideration when choosing a broker is how fast their funding is and what types of funding is available.

easyMarkets withdrawal and deposit process is simple, fast and supports multiple payment and withdrawal methods, including direct deposit and major credit/debit cards such as Visa, Mastercard, Maestro, American Express, JCB and Astro Pay.

It also allows online banking such as WebMoney and eWallets such as Neteller and many more:

Method	Countries	Deposits Processing Time*	Fee
Credit/Debit Cards
	All countries excluding China	Instant	FREE
	All countries	Instant	FREE
	All countries	Instant	FREE
	All countries excluding APAC	Instant	FREE
	Europe only	Instant	FREE
	All countries excluding EU and Australia	Instant	FREE
Online Banking
	Germany, Austria, Belgium, Netherlands, United Kingdom only	up to 24 hours	FREE
	Germany only	2 hours	FREE
	Netherlands only	Instant	FREE
	As per EU countries specified by Ingenico - processor may add/remove countries at their discretion	3 - 5 working days	FREE
	Malaysia only	up to 24 hours	FREE
	All countries excluding Europe and APAC	1 working day	FREE
	APAC only	1 working day	FREE
eWallet
	View list of non-serviced countries	Instant	FREE
	View list of non-serviced countries	Instant	FREE
	Indonesia only	1 working day	FREE
Bank Wire Transfer
Learn more about Bank Wire Transfers.
China only
	China only	1 - 2 working days	FREE
	China only	1 working day	FREE

* Processing time is based on given third party payment provider estimations and easyMarkets is not liable for changes to these estimations.

Choosing the Right Forex Trading Platform

Depending on your needs and level of experience, you may choose to trade through easyMarkets fully featured App, intuitive and robust Web Platform or Metatrader 4.

MT4 is usually preferred by people that have access to a computer, either desktop or laptop. It has many features but also a steep learning curve. easyMarkets platform on the other hand is both intuitive and powerful, and online. This means you can trade everywhere you have an internet connection.

If you want to be optimally mobile, then you can also use easyMarkets App available on Android and iOS; download it on your phone and you can trade forex on the go.