79% of retail accounts lose money when trading CFDs with this provider. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Regulator asic CySEC fca

Forex Trading for Beginners - 2020 Manual

Reading time: 20 minutes

forex trading for beginners

Forex trading for beginners can be difficult. In general, this is due to unrealistic but common expectations among newcomers to this market. The first question that comes to everyone's mind is: how to learn Forex from scratch? Don't worry, this article is our definitive Forex manual for beginners.

Trading terminology made easy for beginners

Spot Forex

This form of Forex trading involves buying and selling the real currency. For example, you can buy a certain amount of pound sterling and exchange it for euros, and then once the value of the pound increases, you can exchange your euros for pounds again, receiving more money compared to what you originally spent on the purchase.

CFDs

The term CFD stands for "Contract for Difference". It is a contract used to represent the movement in the prices of financial instruments. In Forex terms, this means that instead of buying and selling large amounts of currency, you can take advantage of price movements without having to own the asset itself. Along with Forex, CFDs are also available in stocks, indices, bonds, commodities, and cryptocurrencies. In all cases, they allow you to trade in the price movements of these instruments without having to buy them.

If you are interested in knowing how CFDs work in greater detail, we recommend the following article: What is CFD Trading?

Pip

A pip is the base unit in the price of the currency pair or 0.0001 of the quoted price, in non-JPY currency pairs. So, when the bid price for the EUR / USD pair goes from 1.16667 to 1.16677, that represents a difference of 1 pip.

Spread

The spread is the difference between the purchase price and the sale price of a currency pair. For the most popular currency pairs, the spread is often low, sometimes even less than a pip! For pairs that don't trade as often, the spread tends to be much higher. Before a Forex trade becomes profitable, the value of the currency pair must exceed the spread.

Margin

Margin is the money that is retained in the trading account when opening a trade. However, because the average "Retail Forex Trader" lacks the necessary margin to trade at a volume high enough to make a good profit, many Forex brokers offer their clients access to leverage.

Leverage

This concept is a must for beginner Forex traders. The leverage is the capital provided by a Forex broker to increase the volume of trades its customers can make.

Example:

  • The face value of a contract or lot equals 100,000 units of the base currency. In the case of EUR/USD, it would be 100,000 euros.
  • If you use a 1:10 leverage rate and have 1,000 euros in your trading account, you can trade a currency pair with a $10,000 position size.
  • If the trade is successful, leverage will maximise your profits by a factor of 10. However, keep in mind that leverage also multiplies your losses to the same degree.

Therefore, leverage should be used with caution. If your account balance falls below zero euros, you can request the negative balance policy offered by your broker. ESMA regulated brokers offer this protection. Using this protection will mean that your balance cannot move below zero euros, so you will not be indebted to the broker.

Forex trading lessons for beginners

Price and Quote

When you trade Forex, you will see Ask and Bid prices.

  • The ask price is the price at which you can buy the currency
  • The bid price is the price at which you can sell it

One of the things you should keep in mind when you want to learn Forex from scratch is that you can trade both long and short, but you have to be aware of the risks involved in dealing with a complex product.

Long trade

Buying a currency with the expectation that its value will increase and make a profit on the difference between the purchase and sale price.

forex trading for beginners

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Short trade

You sell a currency with the expectation that its value will decrease and you can buy back at a lower value, benefiting from the difference.

forex trading for beginners

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

The price at which the currency pair trades is based on the current exchange rate of the currencies in the pair, or the amount of the second currency that you would get in exchange for a unit of the first currency (for example, if you could exchange 1 EUR for 1.68 USD, the purchase and sale price your broker gives will be on either side of this number).

If the way brokers make profit is by collecting the difference between the buy and sell prices of the currency pairs (the spread), the next logical question is: How much can a particular currency be expected to move? This depends on what the liquidity of the currency is like or how much is bought and sold at the same time. The most liquid currency pairs are those with the highest supply and demand in the Forex market. It is the banks, companies, importers, exporters and traders that generate this supply and demand.

The major currency pairs tend to be the most liquid, with the EUR / USD currency pair moving 90-120 pips on an average day and therefore providing the most opportunities for short-term trading. In contrast, the AUD / NZD pair moves between 50 and 60 pips per day, and the USD / HKD currency pair only moves at an average of 32 pips per day (looking at the value of the currency pairs, most will appear with five decimal points).

The main Forex pairs tend to be the most liquid. However, there are also many opportunities between minor and exotic currencies, especially if you have some specialised knowledge about a certain currency.

Chart types

When viewing the exchange rate in live Forex charts, there are three different options available to traders using the MetaTrader platform: line charts, bar charts or candlestick charts. When in the MetaTrader platform you can toggle between these different chart types by selecting View -> Toolbars -> Standard option. In the toolbar at the top of your screen, you will now be able to see the box below:

Toolbar icons

Line charts

forex trading for beginners

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

A line chart connects the closing prices of the time frame you are viewing. So, when viewing a daily chart the line connects the closing price of each trading day. This is the most basic type of chart used by traders. It is mainly used to identify bigger picture trends but does not offer much else unlike some of the other chart types.

OHLC bar charts

forex trading for beginners

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

An OHLC bar chart shows a bar for each time period the trader is viewing. So, when looking at a daily chart, each vertical bar represents one day's worth of trading. The bar chart is unique as it offers much more than the line chart such as the open, high, low and close (OHLC) values of the bar.

The dash on the left represents the opening price and the dash on the right represents the closing price. The high of the bar is the highest price the market traded during the time period selected. The low of the bar is the lowest price the market traded during the time period selected.

  • The green bars are known as buyer bars as the closing price is above the opening price.
  • The red bars are known as seller bars as the closing price is below the opening price.

In either case, the OHLC bar charts help traders identify who is in control of the market - buyers or sellers. These bars form the basis of the next chart type called candlestick charts which is the most popular type of Forex charting.

Candlestick charts

forex trading for beginners

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Candlestick charts were first used by Japanese rice traders in the 18th century. They are similar to OHLC bars in the fact they also give the open, high, low and close values of a specific time period. However, candlestick charts have a box between the open and close price values. This is also known as the 'body' of the candlestick.

Many traders find candlestick charts the most visually appealing when viewing live Forex charts. They are also very popular as they provide a variety of price action patterns used by traders all over the world.

Nothing will prepare you better than demo trading - a risk-free mode of real-time trading to get a better feel for the market. It is highly recommended that you dive into demo trading first and only then enter live trading. The results will speak for themselves.

forex trading for beginners

Best trading systems

Now that you know how to start trading in Forex, the next step is to choose the best Forex trading system for beginners. Fortunately, banks, corporations, investors, and speculators have been trading in the markets for decades, meaning that there are already a wide range of types of Forex trading strategies to choose from. These include:

  • Currency Scalping: Scalping is a type of trading that consists of buying and selling currency pairs in very short periods of time, generally between a few seconds and a few hours. This is a very practical strategy that involves making a large number of small profits in the hope those profits accumulate.
  • Intraday Trades: Forex intraday trading is a more conservative approach that can suit beginners. It is focused on four-hour or one-hour price trends. Trades can be open between one and four hours. In general, they focus on the main sessions for each Forex market.
  • Swing Trading: Swing trading is a medium-term trading approach that focuses on larger price movements than scalping or intraday trading. This means that traders can keep a trade open for days or a few weeks. This type of trading is a good option for those who trade as a complement to their daily work.

To compare all of these strategies we suggest to read our article "A Comparison Scalping vs Day trading vs Swing trading"

Trading platform for beginners

In addition to choosing a broker, you should also study the currency trading software and platforms they offer. The trading platform is the central element of your trading and your main work tool. When evaluating a trading platform, and even more so if you are a beginner in Forex, make sure that it includes the following elements:

Trust

Do you trust your trading platform to offer you the results you expect? Being able to trust the accuracy of the quoted prices, the speed of data transfer and the fast execution of orders is essential to be able to trade Forex successfully. Even more so, if you plan to use very short-term strategies, such as scalping.

The information must be available in real-time and the platform must be available at all times when the Forex market is open. This ensures that you can take advantage of any opportunity that presents itself.

Security

Will your funds and personal information be protected? A reputable Forex broker and a good Forex trading platform will take steps to ensure the security of your information, along with the ability to back up all key account information.

It will also segregate your funds from its own funds. If a broker cannot demonstrate the steps they will take to protect your account balance, it is better to find another broker.

Independent account management

Any Forex trading platform should allow you to manage your trades and your account independently, without having to ask your broker to take action on your behalf. This ensures that you can act as soon as the market moves, capitalise on opportunities as they arise and control any open position.

Analysis

Does the platform provide embedded analysis, or does it offer the tools for independent fundamental or technical analysis? Many Forex traders trade using technical indicators, and can trade much more effectively if they can access this information within the trading platform, rather than having to leave the platform to find it. This should include charts that are updated in real-time and access to up-to-date market data and news.

forex trading for beginners

A screenshot of the MetaTrader Supreme Edition provided by Admiral Markets.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Automated trading functionality

One of the benefits of Forex trading is the ability to open a position and set an automatic stop loss and profit levels, at which the trade will be closed. The most sophisticated platforms should have the functionality to carry out trading strategies on your behalf, once you have defined the parameters for these strategies.

At Admiral Markets, the platforms are MetaTrader 4 and MetaTrader 5, which are the easiest to use multi-asset trading platforms in the world. Both platforms can be accessed through a variety of devices including PC, Mac, iOS and Android devices, as well as, web browsers through the MetaTrader WebTrader platform for MT4 and MT5.

These are fast, responsive platforms that provide real-time market data. Furthermore, these platforms offer automated trading options and advanced charting capabilities and are highly secure, which helps novice Forex traders.

MetaTrader 5 is the latest version and has a range of additional features, including:

  • Access to thousands of financial markets
  • A Mini Terminal that offers complete control of your account with a single click
  • 38 built-in trading indicators
  • The ability to download tick history for a range of instruments
  • Actual volume trading data
  • Free-market data, news and market education

Risks every beginner should know

There are different types of risks that you should be aware of as a Forex trader. Here are some of them.

  • Leverage Risk: Leverage in trading can have both a positive or negative impact on your trading. The higher your leverage, the larger your benefits or losses.
  • Interest Rate Risk: The moment that a country's interest rate rises, the currency could strengthen. The boost in strength can be attributed to an influx of investments in that country's money markets since with a stronger currency,higher returns could be likely. But if the interest rate falls, the currency may weaken, which may result in more investors withdrawing their investments.
  • Transaction Risk: This risk is an exchange rate risk that can be associated with the time differences between the different countries. It can take place sometime between the beginning and end of a contract. There is a chance that during the 24-hours, exchange rates will change even before settling a trade. The transaction risk increases the greater the time difference between entering and settling a contract.

Three simple Forex trading strategies

Below is an explanation of three Forex trading strategies for beginners:

Breakout

This long-term strategy uses breaks as trading signals. Markets sometimes swing between support and resistance bands. This is known as consolidation. A breakout is when the market moves beyond the limits of its consolidation, to new highs or lows. When a new trend occurs, a breakout must occur first. Therefore, breaks are considered as possible signs that a new trend has started. But the problem is that not all breakouts result in new trends. Using a stop loss can prevent you from losing money.

forex trading for beginners

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Moving average cross

Another Forex strategy uses the simple moving average (SMA). Moving averages are a lagging indicator that use more historical price data than most strategies and moves more slowly than the current market price.

forex trading for beginners

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

In the graph above, the 25-day moving average is the orange line. As you can see, this line follows the actual price very closely. The 200-day moving average is the green line.

When the short-term moving average moves above the long-term moving average, it means that the most recent prices are higher than the oldest prices. This suggests an upward trend and could be a buy signal. Conversely, when the short-term moving average moves below the long-term moving average, it suggests a downward trend and could be a sell signal.

Rather than being used solely to generate Forex trading signals, moving averages are often used as confirmations of the overall trend. This means that we can combine these two strategies by using the trend confirmation from a moving average to make breakout signals more effective. With this combined strategy, we discard breakout signals that do not match the general trend indicated by the moving averages.

For example, if we receive a buy signal for a breakout and see that the short-term moving average is above the long-term moving average, we could place a buy order. If not, then it may be best to wait.

Donchian channels

The Donchian Channels were invented by Richard Donchian. The parameters of the Donchian Channels can be modified as you see fit, but for this example we will look at the 20-day breakdown. The indicator is formed by taking the highest high and the lowest low of a user defined period (in this case 20-periods).

A break in the Donchian channel provides one of two things:

  1. Buy if the market price exceeds the highest high of the last 20 periods.
  2. Sell if the market price exceeds the lowest low of the last 20 periods.

forex trading for beginners

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

That's not all! There is another tip for trade when the market situation is more favourable to the system. This tip is designed to filter out breakouts that go against the long-term trend.

Look at the moving average of the last 25 and the last 300 days. The direction of the shorter-term moving average determines the direction that is allowed. Therefore, you may want to consider opening a position:

  • Short: If the 25-day moving average is less than the last 300-day moving average.
  • Long: If the 25-day moving average is greater than the 300-day moving average.

The exit from these positions is similar to the entry but using a break from the last 10 days. This means that if you open a long position and the market moves below the 10-day minimum, you will want to sell to exit your position and vice versa.

Trading With Admiral Markets

If you're ready to trade on live markets, a live trading account might be suitable for you. Admiral Markets offers traders the ability to trade with 80+ currencies, with access to a range of Forex majors, Forex minors, and exotic currency pairs. To open your live account, click the banner below!

Trade Forex & CFDs

About Admiral Markets

Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisers to ensure you understand the risks.

Admiral Markets Group consists of the following firms:
Admiral Markets Pty Ltd
Regulated by the Australian Securities and Investments Commission (ASIC)
CONTINUE
Admiral Markets Cyprus Ltd
Regulated by the Cyprus Securities and Exchange Commission (CySEC)
CONTINUE
Admiral Markets UK Ltd
Regulated by the Financial Conduct Authority (FCA)
CONTINUE
Note: If you close this window without choosing a firm, you agree to proceed under the FCA (UK) regulation.
Note: If you close this window without choosing a firm, you agree to proceed under the FCA (UK) regulation.