- My Top 2 Tips For Newbie Forex Traders.
- What is Forex Trading?
- Forex trading
- How Do You Get Started in Forex Trading?
- How to Choose a Reliable Broker
- Top 5 Forex Offers for Sydney
- Best Trading App
- How to Use a Demo Account
- How to Educate Yourself
- How to Develop a Trading Strategy
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- Best Forex Trading
- How Forex Trading Works
- How to Manage Your Risk
We want to get you started Forex trading as quickly as possible, but Forex trading is complex and high-risk and is not something you can learn overnight.
You will need to develop a complete understanding of the concepts involved and understand how risk can harm your profit potential.
My Top 2 Tips For Newbie Forex Traders.
You will also need to understand how different Forex brokers operate and how to find a reliable one. Finally, you will need to develop a winning strategy and put it to work in the live market.
What is Forex Trading?
The Forex market is a global decentralised financial market where currencies are traded.
Forex trading is the exchange of currencies on this market, the goal being to make a profit from fluctuations in the exchange rate.
To open a trade, you must choose a currency pair, and indicate the direction you expect the exchange rate to move. As the exchange rate between the two currencies shifts, you close the trade for a profit or a loss.
Currency pairs are an expression of one currency’s value in terms of another currency.
For instance, if the AUD/USD is at 1/0.7 we are saying that 1 Australian Dollar is equal to 0.7 US Dollars.
In Forex trading, common currency pairs include GBP/USD, AUD/USD and EUR/USD.
If you buy the AUD/USD, you are effectively buying the AUD and selling the USD at the same time. When you close your position, you are selling the AUD that you had bought and buying back the USD. If the AUD has strengthened against the USD in that time, you will have made a profit – as you will now be able to afford more USD than you originally sold.
Online retail Forex trading is generally Contract for Difference (CFD) trading.
In CFD trading, the trader never takes ownership of the asset itself.
Instead, the trader is only speculating on the price of a currency. Just because you are trading the USD against the AUD, does not mean that you own either currency at any point in time.
Forex trading involves risk, and inexperienced traders can quickly lose all their money because the Forex market is volatile and impossible to perfectly predict. Using a risk management strategy is essential; 70-95% of retail Forex traders lose money, mainly because they did not follow a sound trading strategy.
How Do You Get Started in Forex Trading?
- Choose a reliable broker
- Use a demo account until you are comfortable
- Educate yourself sufficiently
- Develop a trading strategy
- Manage your trading risk
How to Choose a Reliable Broker
Brokers differ in a number of ways, and it’s always important to inspect a broker thoroughly before opening an account.
Below are the most important criteria used to compare brokers, and those we use in our annual State of the Market Report.
Regulation – Is your broker regulated by ASIC (Australia), FCA (UK) or CySec (European Union)? These are the three best regulators of non-banking financial services in the world, so make sure your broker is regulated by at least one of them.
Other regulators do exist, but they are not necessarily as thorough in enforcing regulatory policy and protecting customers from unscrupulous brokers.
Top 5 Forex Offers for Sydney
If you are only interested in trading with brokers regulated in Australia, our full list of ASIC regulated brokers is here – be aware that ASIC will be tightening regulation in the coming months for all Australian brokers.
Broker Spreads and Commissions – Forex brokers are businesses and will be trying to make money from your trading. ECN brokers will take a commission for handling your trades, while others will make money by stretching the difference between the buying and selling price of the pair.
This difference is known as the spread, and while the spread is an expected part of trading when it gets too wide, it will eat into your profits. ECN brokers will have tighter spreads, but you may not want to pay the extra fees.
Minimum Deposit – Make sure you are comfortable with your broker’s required minimum deposit but be wary of accounts with very low minimum deposits.
Generally, the lower the required minimum deposit, the worse the trading conditions on the account. If you want to use higher leverage and have tighter spreads, you will likely need to invest a minimum of 200 AUD when opening an account.
Withdrawal and Deposits – It is your money, and the broker should treat it as such.
Best Trading App
If they charge you to withdraw or deposit funds, you should discuss this with your account manager or choose a different broker.
Trading Platforms – There are a number of different trading platforms, though MetaTrader 4 has been the industry standard for many years and most brokers will support it. Other common platforms are MetaTrader 5 and cTrader. Many brokers have also developed their own trading platforms and these will generally run in your browser.
How to Use a Demo Account
Demo accounts are not for play – they are important educational tools.
Good brokers offer unlimited demo accounts with 100,000 USD (or equivalent) virtual money to get started.
You should use a demo account to learn how a broker’s platform functions as well as the basics of trading.
Even once you have opened a live account, you should keep your demo account open and use it often, as it’s a perfect place to test strategies and examine the market behaviour of new currency pairs.
How to Educate Yourself
Probably the most important part of preparing for your trading career is to educate yourself.
With Forex trading you can never learn enough and you should read/watch as much as you can; a good place to start is our essential guide to Forex trading.
All good brokers will have comprehensive and detailed education sections, full of video tutorials, articles, blogposts: Take advantage of this.
Some will even host webinars and live workshops.
When it comes to Forex trading, everything you learn will only help you become a better trader. Learn how to use fundamental analysis and technical analysis, learn how to manage risk, learn how to read charts and use indicators, learn how different currencies react to the same events.
Successful traders never stop learning, so cultivate the habit of self-education.
How to Develop a Trading Strategy
Every Forex trader has their own style and strategy and it’s important to develop yours.
It is common that people trade in different ways and on different time schedules.
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Each trading method depends on different trading skillsets and how much time you have available, making each unique.
Scalping – This is a high-energy trading strategy, involving the opening and closing of many trades over a brief period.
In extremely volatile markets, scalpers will keep trades open for only a matter of minutes.
Volatility is highest when markets open or when major new economic reports are released so scalpers tend to operate at these times. This trader is heavily reliant on charts and tools to plan the entry and exit of trades. If you relish the idea of market analysis and have the free time to be in front of your computer when required, this could be for you.
Day Trading – For this trader, each day starts new.
Best Forex Trading
Every morning, trading starts, investments are made, and then before the day ends, all positions are closed. This trading relies heavily on understanding the planned news events for the day and the ability of the trader to find opportunities in the new developments that happen without notice.
If you are well-read and understand geo-politics, then you could be a day trader.
You will also need a good understanding of chart analysis for this trading strategy.
Swing Trading – If you have a little less time for being in front of a computer, but you are still very engaged with news events, analysis and significant trends you could be a swing trader. These traders can hold trades open for days at a time, and if you are a trader on the go, this could be better suited for you. This strategy does not rely on charts as heavily as day trading and scalping do.
Position Trader – For those who want to play the long game, there is position trading.
This trading styles does not rely on any technical analysis and instead takes advantage of long-term currency trends.
How Forex Trading Works
Position traders often hold trades open for months at a time.
Forex trading requires a lot of trial and error. Expect to try several different strategies before you find the right one, or combination, that works for you.
How to Manage Your Risk
The Forex market is renowned for being high-risk and will quickly empty your wallet if you don’t take the necessary precautions. Never deposit more than you can afford to lose into your trading account and never trade more than you want to lose in a single trade.
Make sure trading isn’t going to be painful for you and you will have a lot less stress and a lot more fun.
A standard rule to avoid too much risk is to never trade more than 5% of your account on any given day and never trade more than 2% of your account on a single trade. Check out our guide to risk management in Forex for more suggestions on how to manage this essential and potentially dangerous aspect of trading.