Explore forex trading for beginners

Forex is vast. So much so that it frightens a lot of would-be traders. It encompasses trading knowledge, economic principles, political knowledge of large countries and regions, and trade relations. Then, there’s another layer in how those factors cross over and interact with each other.

Do you need to learn all of this before starting forex? No.

Realistically, the percentage of forex traders who have a firm grasp on all of these concepts is in the single digits. Yet, there are thousands upon thousands of traders who, despite not having intimate knowledge of the world’s politics or economics, thrive in forex.

So, how is that? Forex trading is a skill, and learning it is similar to learning any other skill.

Imagine you’re trying to play a song on the guitar, much like starting with forex trading. Do you start by buying music theory tomes and studying them? No, you find a tutorial, press on the strings they tell you to, and start picking at them. It’s stiff at first, but soon it starts sounding like you’re playing notes. Chain a few of those together, you’ve got a melody, keep it up over three or so minutes, and you’ve played a song.

Do you know why those notes were in the order they were, which chords you were moving across, or what scale you were in? Probably not. That didn’t stop the song from sounding at least decent.

Apply that same logic to forex. You don’t need to know everything before you start trading. You start by taking baby steps, picking up a few things through practice, and learning as you go.

But What About the Money?

A common misconception is that you need some capital to start learning, and that while learning, you’re all but sure to lose that capital. Luckily, that doesn’t need to be the case!

A demo account is an account that lets you trade with virtual funds. In other words, you get some Monopoly money and can use it to practice in a simulated copy of the markets.

Many online brokers offer this service, including us at IronFX. A demo account should be completely free and is most often accessible after registering with a brokerage.

If someone is asking you to pay for a demo account, stay far away. This is not a common practise in the trading world, and there is likely malicious intent.

Forex Crash Course

Before we get into the practicalities, let’s cover the very basics of forex trading for those who know absolutely nothing about it. Forex is a speculative market, meaning that traders wager on prices either rising or falling. When you buy, you’re assuming that the price will rise, and when you sell, you’re assuming it will fall.

Forex instruments are always listed as pairs of two currencies. The most commonly traded pair is EUR/USD, a pairing of the euro and the US dollar.

The price of a pair in forex trading isn’t determined by the strength of an individual currency, but rather the relation of the two that comprise it. In the EUR/USD example, the price will rise as long as the euro outperforms the dollar. So, even if the euro weakens, if the dollar weakens even more, the price will go up, since the euro has become stronger relative to the dollar.

Finding a Broker for safe forex trading

The first practical step, of course, is to find a broker that will provide you with a demo account and other services down the line. There’s a lot to consider here, but if you’re only starting out, let’s not look too far into the trading specs, so as not to overburden you with information.

Your number one priority should be your safety. The online trading world is full of bad actors, and a lapse in attention can end up costing you a lot. Your number two priority is making sure that you’re using the same tools on your demo account that you will be using once you get to the real market.

Here’s a checklist:

• How old is the broker? – A significant indication of trust, with older brokerages generally being more trustworthy
• Is the information on the website clear and realistic? – Check whether the broker provides a clear picture of what it offers and asks of you
• Is the instrument variety solid? – Instruments are the things you trade. If you want to be a forex trader, check if the broker provides a sufficient list of currency pairs
• Is MetaTrader 4 present? – MetaTrader 4 is what’s known as a trading platform – essentially the program that you trade with. MT4 is important in particular because it’s the most widely adopted online trading platform. This means that if you learn it, you’ll likely find the same software with whichever broker you decide to use in the future.

The Terminology of forex trading

The first issue that most people encounter when they try to enter the forex trading world is that they don’t understand the specialised language. Here, we’ll cover some of the basic terms that’ll help you get going.

• Pip (Pip) – the smallest unit of price movement in a currency pair
• Spread (Spread) – the difference between the buying and selling prices of a currency pair
• Long and short positions – going long means buying and going short means selling
• Lot (Lot) – a unit of measurement for forex, a standard lot is 100,000 currency units
• Mini, micro, nano lots – fractions of a lot for smaller trades at 10,000, 1,000, and 100 units, respectively
• Leverage (Leverage) – a way of multiplying your capital to take larger positions, while also magnifying any gains or losses

We’d like to emphasise that leverage in particular is an alluring but extremely dangerous tool. We recommend that newer traders stay away from it until they’ve gotten more confidence.

As for the terms themselves, there are many more. There are many forex glossaries available for free online that you can use to familiarise yourself with these concepts. Alternatively, if you encounter a term you are not familiar with, you can use AI tools to get explanations, descriptions, and practical examples to deepen your understanding.

The Basics of a Trading Platform

If you’ve followed our suggestion, the first platform you’ll open is MetaTrader 4. So, let’s finish these entry-level steps with a quick guide on what you see and how you can make your first trade.

On the top of your screen is the toolbar, a horizontal bar with various options and features. For the purpose of today’s guide, let’s ignore it.

On the left, you’ll see the Market Watch tab. This is where the assets you can trade for your forex trading practice are located. Below it is the Navigator, which contains features that are a bit too advanced for our current level.

At the bottom is the Terminal, where you can see your open positions and trade history.

Finally, the large middle part is where your charts are. Charts show you the price history of the asset you are looking at, with the X-axis representing time and the Y-axis representing the price.

Now, let’s wrap it all up by making our first forex trading trade. Note that we are assuming you are on a demo account. If not, following these steps will put your capital at risk, so avoid doing so.

A chart may already be present on your screen. If so, you can skip these first three steps that pertain to opening a chart. Let’s get started:

• Navigate to your Market Watch tab
• Right-click a forex pair you’re interested in
• Press Chart Window

Now a chart is definitely in the middle of your screen. Let’s open our first position:

• Right-click the open chart
• Hover over Trading in the drop-down menu and press New Order
• A new window will open, and you’ll see the Buy by Market and Sell by Market options
• Press the former if you think the price will go up, and the latter if you believe it will go down (remember, we aren’t trading with real money, we’re just testing the water)
• Your position is now open

There’s one last step in forex trading: a trade isn’t over until you close the position. You may consider waiting a while and seeing how the price moves. Once you’re satisfied with the results, close the trade with the following steps:

• Navigate to the Terminal in the bottom and open the Trade tab if it’s not already open
• Find your position there and right-click it
• You’ll see the same window as when you were opening the trade, with a new button that says Close
• Press the Close button

And that’s it! There are a lot more steps you need to take to become an effective trader, including a lot of practice, learning, and trial and error. However, you’ve taken a meaningful first step and hopefully have a solid footing to stand on. Keep building on that bit by bit, and you’ll see that forex isn’t that overwhelming after all.

Disclaimer: This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.