The most common mistake people make when starting forex trading is setting unrealistic expectations. And when the scenario doesn’t work as per their choices, they give up! People need to understand that it is not an overnight ‘rich’ making tool. One needs to have proper knowledge and skills to be in the game for the long run. Starting forex trading is not as simple as it sounds; it is not just opening your account with a broker and start trading. In this post, we’re going to get you an ultimate step-by-step guide on how to start currency trading. These steps are written might sound simple, but are so essential and effective that at the’ end of the day’ you might be recommending this post to your friends too.
Let’s first start by understanding some basics.
The forex market is one of the most interesting and active financial markets in the world. If we try to explain forex to you in the most natural way, then take the example of travelling abroad. When you travel to another country, you would probably need that country’s currency to buy anything. To get that country’s local currency, you need to exchange that with your country’s currency at the prevailing rate. At this point, you’re doing a foreign exchange, i.e., converting one currency into another.
What is Forex Trading?
Forex, a short name for foreign exchange, means exchanging the currency of one country for another. And when this forex creates a network of buyers and sellers who trade currency at a particular price, then that can be said as forex trading.
Now that you have got an insight into the most common terms in forex, it’s time to move to the step-by-step guide on how to start forex trading.
Ultimate Step-by-Step Guide for Forex Trading
Step 1: Start with the Basics
Forex is a complex market, and not everybody might be able to understand all the terms and language used. Thus, to tackle this situation, it is always recommended to take some time out to learn forex trading, its related terms, and the other ins and outs of it. There are a plethora of ways to learn and hone your skills in forex trading. Video tutorials, books, online courses, blogs, articles, and journals are some of the roads. One can also find a forex expert, if possible, and learn from him all the basic nuances in an easier way.
All these things will make you familiar with commonly used forex terms and make your starting journey simpler. Here are some basic terms and phrases related to forex trading.
- Base Currency: The current holding currency. For example, if you live in Japan, then your base currency would be Japanese Yen.
- Quote Currency: It is the currency that you want to buy.
- Ask price: In simple terms, it is the price that a broker would demand in exchange for the quote currency, you want to buy.
- Bid price: It is the price that a seller would demand in exchange for his base currency.
- Spread The difference between the asking price and bid price.
- Pip: Stand for percentage in point. It is the fundamental measurable value of any movement in the currency. A single ‘pip’ is usually equal to 1/100th of 1% of a currency.
Step 2: Arrange the funds
Once you’re done with understanding all the necessary terminologies related to forex trading, it’s time to organize the funds required. Fortunately, you do not need a large pool of capital to start trading. Just a minimum $5-$10 fee to open an account with a broker.
Some brokers don’t even charge that. And after creating the account, you can move forward with whatever amount of capital you want to trade with.
Step 3: Finding the right broker
The forex doesn’t work like any other market. It doesn’t have any physical presence anywhere. You’ll need a broker to start trading. Thus, before moving to trade, it is necessary to choose a brokerage firm and have an account open with them. These brokers have platforms where anyone, who wants to trade, can get an account and start trading in forex and other financial markets.
With a broker being so much important for trading, it is crucial to choose an authentic, trustworthy, and reliable one. There are several factors upon which you can judge a broker’s reliability, such as client reviews, terms and conditions, other trading options, and margins. Make sure to choose a registered broker only with an easy user-interface platform. Because at the end of the day, it is going to make the difference between losing money and profiting.
Step 4: Analyse, Analyse, and Analyse forex trading
Forex trading is nothing but making predictions about the growth of different economies of the world. In other words, it is accurately guessing the movements and dynamics of the global economy.
Profiting from forex trading is converting your base currency to the quote currency of the country, you think will grow. Then, when the quote currency takes a boost, convert that back to your base currency of your country. Be aware of the world events, their influence, GDP’s, and political climates of countries (in which you are interested in purchasing currency). There are different methods to analyse the environment.
- Technical Analysis: It includes evaluating charts, graphs, and other technical data to forecast how the currency of a particular country will move, based upon the past data and events. This data and charts are usually available with your broker, or you can also use other online platforms like Metatrader.
- Fundamental Analysis: It involves analysing a particular country’s fundamental economic situation and using this data upon your trading commitments.
- Sentiment Analysis: as the name suggests, this analysis is based upon an individual’s sentiments about a country. Through this subjective analysis, you try to figure out the market situation, whether it’s ‘bearish’ or ‘bullish.’
Step 5: Opening an account
Post choosing the best brokerage firm for you and carefully analysing the market and the world, its time to open your forex trading account. We would suggest you to first start trading on a demo account with virtual money. It would help you avoid losses in the real-time. One can also start developing their own style and strategy here. Remember, these demo accounts are offered for a limited period of time only.
After playing your trading game for a few weeks in a demo, it’s time to open a real trading account. Make sure you have gained a significant amount of confidence with the demo account. Some brokers might also convert your demo account to a real account only. You need to deposit a minimum amount to start trading.
After all these steps, you look completely equipped to start your forex trading. Hopefully, this ultimate guide would contribute something when you start trading. Before wrapping it up, do you want to get through a surprising fact?
Fun Fact: The forex market trades about $5 trillion a day.
Amazed? Then what are you waiting for now? Go and make your first trade!!!