How To Trade Forex For Beginners: Master Guide 2024

This Guide will give you all the information you need so you can learn how to trade forex for beginners. You’ll learn what Forex trading is, how to trade Forex, how to make your first trade, plus our best beginner Forex trading strategies. We’ll also help provide you with the Forex trading strategies you need to find the best currency pairs and improve your daily ROI.

By the end of this forex trading guide, you’ll be equipped with the right knowledge to tackle the world’s largest capital market.

Learning how to find underpriced currencies can help you earn money as a forex trader. As a bonus, we’re also going to reveal the best forex trading platforms.

If this is your first time on our website, Trading Strategy Guides welcomes you. Make sure you check out our premium trading content and subscribe to be notified when we post new content.

If you are new to trading altogether, you may want to check out our Beginner’s guide to trading. It’s a comprehensive training on the different markets, brokers, order entries, and tips and tricks to better understand how trading works.

Introduction: How to Trade Forex for Beginners

The Foreign Exchange Market is by far the biggest in the world in terms of liquidity and trading volume. It’s estimated that, on average, more than $5 trillion are transacted daily.

Successful forex trading is made possible due to leverage. Leverage makes it possible for forex traders to open much bigger positions than they can afford on paper.

There are pros and cons of trading forex that you need to factor in. If you want to have a good starting experience, you need to have a 360-degree view of the FX market.

Forex Trading For Beginners
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You need the best Forex training for beginners that is currently available. Once you are trained, you can learn how the Forex 24-hour trading market can give you access to trading, through the four major trading sessions (London, New York, Tokyo, and Sydney) regardless of your time zone.

Let’s get started and learn Forex by understanding the inner workings of Forex trading.

What is Forex Trading? A Basic Overview

How To Learn Forex Trading For Beginners
Forex trading for beginners

Forex is an abbreviation for the foreign exchange market. In the financial world, Forex trading is also known as FX trading, currency trading, or foreign exchange trading which can all be used interchangeably.

Unlike stocks, which are traded on a stock exchange like the NYSE, the global Forex market is decentralized. Most Forex transactions are carried out over the counter or off-exchange.

These are also referred to as institutional market players. However, there are also quite a few individual traders involved in the market as well. These individuals are referred to as the retail crowd

A retail crowd is a diverse group. These can be consumers who want to buy goods from another country, travelers who’re looking to travel overseas, businesses conducting trade abroad, or investors and traders who wish to take advantage of the price fluctuations in the Forex market.

What is Forex Trading for Beginners?

Forex Trading is the process of converting one currency into another. Usually, you exchange money for a good or service. In stock trading, you exchange money for shares in a company. In the Forex market, when we trade we exchange one currency unit for another currency unit.

he American Dollar (USD), Euro (EUR), and British Pound (GBP) are all among the most commonly traded currencies. Other major currencies include the Japanese Yen (JPY), Canadian Dollar (CAD), and the Australian Dollar (AUD). 

To determine the correct size of a new forex position, use our forex position calculator.

Forex traders trade with one another through a structured group of dealers and computer networks that act as market makers for their own customers.

They place orders of currency pairs (or pairs of currency that you plan to swap). These currency pairs have different exchange rates associated with them, which is where the arbitrage comes in. 

For example, if the price of the EUR/USD exchange rate is 1.1150 it suggests that we can get 1 Euro for every 1.1150 USD.

How to Learn To Trade Forex for Beginners?

The basic foundation of trading in the foreign exchange market consists of understanding how currencies are quoted and what the exchange rates represent. In the Forex market, all currencies are quoted in pairs.

Let’s now examine how many types of currency pairs you can encounter in the FX market.

Features of the Foreign Exchange Market

The main benefit of forex trading is that the Forex market is open 24 hours a day, five days a week from Monday morning till Friday night, excluding weekends. Trading around the clock gives you the ability to trade from anywhere without having time constraints.

Features Of Foreign Exchange Market
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The minimum investment to get started trading FX can be as little as $100. On top of that, the cost of FX trading is much less than other asset classes like trading stocks.

High liquidity is one of the key features of the forex exchange market. With a volume of more than $5.5 trillion, this will ensure stable exchange rates. Secondly, you can open and close trades instantly, without any slippage.

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The most appealing part of foreign exchange trading is the use of leverage. Leverage gives you the possibility to trade with bigger amounts of money than your deposit. For example, if your preferred forex broker offers a 1:50 leverage, it means that for every $1 in your account, you can control $50 in the FX market.

How To Make Money With Currency Exchange
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Learning Forex Basic Terms and Definitions:

Learning a new foreign language starts with learning the alphabet. The same goes for the Forex market which has its own alphabet and language. It’s essential to learn this new language to understand the market.

See below:

Forex Term #1: Currency Pair

Forex is quoted in currency pairs, one currency unit against another currency unit. And each currency has a 3-letter abbreviation.

For example, if we put together the euro and the US dollar we have the currency pair EUR/USD.

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The first currency of the quotation system is called the base currency – the euro.

The second currency of the quotation system is the quote currency or counter currency – the US Dollar.

Forex Term #2: Exchange Rate – The Quote

The exchange rate is the price at which you can buy or sell one currency for another. The price quote shows you how much you need to buy one unit of the base currency using the quote currency.

Since currencies are quoted in pairs, it means that the value of one currency is always stated relative to another currency.

The currency exchange rate is determined by the supply and demand law.

Forex Term #3: Pip

A pip stands for Price Interest Point (or Percentage in Point) and is the smallest price change that a currency exchange rate can make. It’s the last decimal of a Forex quote.

Foreign Exchange Trading Eur To Usd
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For example, if the EUR/USD exchange rate is currently at 1.1500, and by tomorrow is at 1.1580, we can say the EUR/USD exchange rate has increased by 80 pips.

Forex Term #4: Ask Price

Currency pairs use a two-price quotation system. That is the reason why when you pull up the order window you’ll have two prices. On the right side, you have the Ask price, which is the price at which you buy a currency pair.

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For example, if the EUR/USD quote displays the following rates 1.1520/1.1521 you can buy at the 1.1521 prices.

Forex Term #5: Bid Price

On the left side of the two-price quote system is the Bid price or the price you need to pay if you want to sell a currency pair.

For example, if the EUR/USD quote displays the following rates 1.1520/1.1521 you can sell at the 1.1520 prices.

Forex Term #6: Spread

The spread is the difference between the price at which you buy (Ask) and the price at which you sell (Bid). Usually, the size of the Forex spread depends on market liquidity and volatility.

Forex Term #7: Margin

In the Forex market, you don’t need to have the whole amount of what you’re trading. You only need to deposit a small percentage of your trading size to cover possible losses. This deposit that you’re required to set aside is called margin. Your preferred Forex broker will let you trade a certain multiple of that margin.

For example, if you want to buy EUR 10,000/USD and your broker offers you 1:50 leverage, it means that you’ll need to put aside only $500. So with the $500 margin, you can trade as if you had put in $10,000.

Types of Currency Pairs:

Depending on how much trading volume a currency is carrying out, we can split currencies into three major categories:

  • Major Currency Pairs: These are all the currencies that are traded against the US Dollar, the world’s reserve currency. Eg: EUR/USD, GBP/USD, and USD/PY. The major pairs offer the biggest liquidity with EUR/USD being the most liquid currency pair.
  • Minor Currency Pairs: Also referred to as cross pairs and are currency pairs that don’t trade against the US Dollar. Eg: EUR/GBP or EUR/CHF. They offer less liquidity for trading.
  • Exotic Currency Pairs: Also referred to as minor pairs, these are currencies linked to emerging economies around the world. Eg: South African Rand, Brasilian Real, and Turkish lira.

Next, we need to clarify how to read currency pairs and why we use a three-letter quotation system.

See below:

How to Read and Understand Forex Quotes:

The standard quotation system uses a three-letter abbreviation system and will always involve two currencies where the first currency listed on the left is the Base currency while the right is the quote currency. The quoted price indicates how much of Quote currency is required to buy/sell one unit of Base currency.

Best Forex Trading Platform For Beginners
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The next thing to understand is that currency pairs always have two prices: the Bid price and the Ask price. This is the two-way quote system used for buying and selling currencies. In simple terms, the Bid price is the price at which you can buy while the Ask price is the price at which you can sell.

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How to Use Forex Orders:

Generally speaking, a Forex Order is a command given to your broker that shows:

  • What currency pair to buy/sell.
  • The direction of your trade (Long or Short).
  • The price to buy/sell.
  • Where to Take Profit.
  • Where to Exit.
  • How much quantity to buy/sell.
  • The type of order.

Direction-wise, a Forex Order can be used to do two things:

  • Buy (Long) – If you expect the currency pair to rise, we use a buy order that is executed at the Ask price and closed at the Bid price.
  • Sell (Short) – If you expect the currency pair to fall, we use a sell order that is executed at the Bid price and closed at the Ask price.
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There are five common order types that anyone can use to enter and exit a position in the Forex market:

  1. Market orders are designed to open a trade immediately at the best available market price. It can be used for both buying and selling. This order guarantees that the trade will be executed, but in volatile markets, the entry price can be slightly different than the last price quoted.
  2. Limit Order is designed to open a trade at a specific price and an expiration date. It can be used for both buying and selling. This order only guarantees that your trade will be executed at the desired price. For a long, the trigger price needs to be below the market price. For shorts, the trigger price needs to be above the market price.
  3. A stop Order is designed to buy when the trigger price is above the current market price and sell when the trigger price is below the current market price.
  4. Stop-loss order is designed to limit your losses and avert from potentially losing all your capital. If you’re buying and the exchange rate starts to go down the stop-loss order will automatically liquidate your position and minimize the loss.
  5. Take profit order is designed to close a profitable trade and lock in the profits.

How to Open Your First Forex Trade

The first step you need to undertake is to open a practice account with your favorite Forex broker. This will give you a trading platform from where you can access the Forex market.

If you don’t want to wait for a particular exchange rate to be reached to open your first trade you can instruct your trading platform to open the trade at the current price level. This is called entering at the current market price.

You can instruct your trading platform where your stop loss, take profit, and how much quantity you want to trade aka the position size. Your trading platform will do the rest.

Best Forex Trading Platform For Beginners
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In order for you to make a profit, the market needs to go up after you buy. The same is true in reverse if you shorted the market; the price would need to go down for you to profit.

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To invest and trade in the Forex market, you need to understand how margin trading works. Whenever you open a trade you only need to put up as collateral a certain amount of your balance. This deposit is referred to as the margin requirement.

This means that you don’t have to cover the full position size, but only deposit a fraction of it to cover the possible losses. As long as your trade is active, your FX broker will lock up the required margin and only free it back to you once the position is closed. This enables traders to execute much larger trades than they could otherwise afford.

The margin requirement depends on three things:

  1. The instrument you trade is EUR/USD, GBP/USD, USD/JPY, etc.
  2. Position size: This is the amount you buy or sell and it’s measured in lots. For example, 1 standard lot has a nominal value of $100,000 and it’s worth $10 for every pip movement. For example, if you want to trade $50,000 of EUR/USD that equates to 0.5 mini lots and it’s worth $5 for every one pip movement in the exchange rate.
  3. Leverage: This allows you to control bigger sums of money by borrowing from your FX broker so you can boost the profits of a trade. The standard leverage offered by most brokers is 1:50 and it can go as high as 1:500. Using a 1:50 leverage means that you can control with every $1 from your account $50 in buying power. For example, if you invest $10,000 with a broker that provides you with 1:50 leverage it means that your total buying power is $500,000 (50 x $10,000).

The forex instrument, position size, and leverage you choose will depend on your working capital and your forex trading objectives.

How to Calculate Forex Margin:

The margin requirement can be calculated using the following formula:

Margin Requirement = (Contract Size * Lot Size * Price) / Leverage.

For example, if you want to buy 0.8 lots of EUR/USD at the current market price of 1.1150 and use a leverage of 1:100 you need to have in your account at least $892 to open that position. In other words, with only $892 you can control a position size of $80,000 (0.8 lots) which is your buying power. Because of this, forex trading might be more affordable than you assumed.

Margin Requirement = (100,000 * 0.8 * 1.1150) /100 = $892

Again, if you haven’t checked it out already, we highly encourage using a forex position calculator while trading.

Let’s now study some of the market catalysts that can drive a currency pair.

See below:

What Drives the Forex Exchange Rate:

The value of the currency pair can be driven by several factors including:

  • How well a country’s economy is doing?
  • Geopolitical events and how stable is a government.
  • Central Bank’s monetary policy.
  • Interest rates
  • News reports and economic data.
  • Supply and Demand.

These are a few of the factors that can influence the value of a currency.

Best Forex Trading Platform for Beginners

The best forex trading platform for beginners is the MetaTrader4 platform developed by MetaQuotes Software. The MT4 platform is one of the most popular Forex trading platforms utilized by millions of retail Forex traders worldwide. Its features can be used by both experienced and beginner forex traders alike.

The MetaTrader 4 is free and it comes with many built-in features. Countless technical indicators can help you analyze a Forex price chart. Additionally, you can use MT4 to build your own automated trading strategy and backtest any kind of trading ideas you might have.

Learn how to back-test your trading strategies even if you don’t have any experience with our Beginners’ Guide to Effective Backtesting.

Alternatively, you can use the web-based trading platform TradingView, which is another free Forex trading platform that has the same features as the MT4 platform and much more.

Without a forex trading strategy to advance your trading skills, a trading platform is useless. This is why we want to also explore the wide range of forex trading strategies

Below, you’ll discover some different Forex trading strategies that work.

Learn strategies for forex trading for beginners

Forex traders employ different trading styles that mostly fit their personalities. We can break down some forex trading tips for beginners who want to earn into four distinctive trading edges that can be used in different market environments:

  1. Forex scalping strategies (Simple Scalping Trading Strategy: The Best Scalping System)
  2. Forex day trading strategies (Forex Day Trading Strategy)
  3. Forex swing trading strategies (Swing Trading Strategies that Work)
  4. Forex position trading strategies (Positional Trading Strategy – Trade like a Hedge Fund Manager)

While these are the most popular active FX trading strategies, Forex traders can use these concepts to innovate and develop well-versed Forex systems through the use of fundamental analysis and/or technical analysis. There are many tools a Forex trader can use to gain an edge in the FX market like Forex chart patterns, technical indicators, statistics, and much more.

In order to time the Forex market, you can apply a Forex strategy that is designed to improve your trading:

  • Forex trend trading strategies
  • Forex momentum trading strategies
  • Forex range trading strategies
  • Forex reversal trading strategies
  • Forex breakout trading strategies
  • Forex Carry Trade Strategies

As a novice Forex trader, you have a wide variety of Forex trading strategies so you can take advantage of the currency price fluctuations. Since the market conditions are constantly changing, make sure you get familiarized with different types of Forex trading.

Forex Trading For Beginners FAQ

Is Forex Trading Good for Beginners?

Forex trading can be challenging because of several factors such as risk management and also extreme competition in the forex market. The forex market is large, fast-moving, and affects by many different variables. However, If you focus on risk management first and find a solid forex trading strategy, then it can be a great place for beginners to learn to trade.

Is Forex Trading Easy to Learn?

Forex trading is similar to other kinds of trading and if you learn the basics first and focus on the fundamentals it is something that anyone with basic market information can learn and master over time. You have to start somewhere. 

What is the Best Way to Learn Forex?

The best way to learn to be proficient with Forex is to get a demo account where you can practice without having to worry about losing money. When you trade successfully on demo for some time say 6 months then you can move over to a small live account. Only after being successful on a demo first.

Is There a Trading Forex for Beginners PDF guide available to download?

We have many trading guides available here on this site which you can download and print out to help you learn to become successful at forex trading. 

Is Forex Harder to Trade than Stocks?

This is a question that cannot be answered with a plain yes or no. In some ways forex is harder because of the advanced leverage which increases risk but in some ways, it is easier because you don’t have to search through 5,000 different stocks to trade each day. In addition, it is easier because you do not need to have $25,000 dollars to start becoming a day trader.

How do I teach myself to trade forex?

1. Patience: Trading Forex requires patience to learn and master. Be patient with yourself as you navigate the complexities of the market and develop your skills over time

2. Perseverance: Expect setbacks, but don’t let them deter you. Keep pushing forward, learning from mistakes, and refining your strategies.

3. Have a Trade Plan: Develop a comprehensive trading plan outlining your goals, risk tolerance, and strategies. A trade plan helps you stay organized, disciplined, and focused on your objectives.

4. Supply and Demand: Understand the basic principles of supply and demand. Learn how shifts in supply and demand affect currency prices and use this knowledge to identify potential trading opportunities.

5. Brokers: Choose a reputable Forex broker. Research different brokers, compare their features, regulations, and customer reviews, and select one that meets your needs.

6. Price Action: Study price movement patterns and candlestick formations. Price action analysis helps you gauge market sentiment and make informed trading decisions based on price movements alone.

7. Support/Resistance: Learn to identify key support and resistance levels on price charts. These levels act as barriers where price often reverses or consolidates, offering valuable entry and exit points for trades.

8. Trade Management/Psychology: Develop strong risk management skills to protect your capital and manage your trades effectively. Additionally, work on your psychological resilience to maintain discipline and control emotions like fear and greed while trading.

By focusing on these key aspects and continuously educating yourself, you’ll gradually build the knowledge and skills needed to become a successful Forex trader.

Learn Forex Trading For Beginners Video

Final Words – Learn Forex Trading for Beginners

The basic mechanics of trading the forex market are similar to any other market. Buy low and sell high in the hope to generate a profit.

Forex trading for beginners is not a walk in the park because it can be extremely competitive. So, make sure you learn the skilles you need to be successful before you risk your hard-earned money. Learn as much as you can about the ins and outs of FX trading, then, you’ll always be prepared to safely navigate the Forex market.

Thank you for reading!

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Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. No information or opinion contained on this site should be taken as a solicitation or offer to buy or sell any currency, equity or other financial instruments or services. Past performance is no indication or guarantee of future performance.

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