How to Start Forex Trading in 7 Steps
Forex, also known as foreign exchange or FX trading, is the conversion of one currency into another. It is one of the world’s most actively traded markets, with an average daily trading volume of $6.6 trillion, according to the Bank of International Settlements. Famous forex traders include George Soros and Paul Tudor Jones. If you’re asking yourself how to start forex trading in 7 steps, this article points the way.
It is important to note that the Bank for International Settlements, which collects data to inform forex liquidity, is a good resource to gauge the size of the global interbank market, but that non-institutional, or retail and/or individual investors, do not engage in trading directly in the interbank market. Instead retail investors engage in trading with a Registered Foreign Exchange Dealer, which acts as a counterparty to all of its customers’ trades.
1) Discover What Makes Forex Different
Forex is a unique market based on the value of currencies, such as the US Dollar, the Euro and the British Pound. Since currencies are the base of the global financial system, currencies are quoted in terms of other currencies; and every tradeable currency is quoted as a pair, such as EUR/USD and GBP/USD. These pairs represent how much of the first currency it takes to buy the second, for example, EUR/USD quoted as 1.1800 means that 1 Euro is worthUSD$1.18. The forex market operates 24 hours a day, five days a week, in contrast to traditional stock markets. The nature of forex allows traders to set their own schedule and to use different skills and knowledge to find success. Check out our free trading guides to learn more.
2) Learn the Different Ways to Trade Forex
There are different styles one can use to trade forex markets. Picking the right trading strategy depends on your knowledge of economic trends and chart patterns, the amount of time you plan to dedicate to trading, and your time horizon for trades. We’ve identified eight different forex trading strategy types. Take our DNA FX quiz to discover what kind of forex trader you are.
3) Can I Start Forex Trading by Myself?
To trade forex by yourself, you should have a good understanding of your own psychological makeup. Setting your emotions aside and trading based on a well-constructed strategy can lead to success. Learn about tools to help you stick to your trading strategy with our free educational webinars.
4) Is $10 Enough to Start Forex Trading?
You can start trading with $10, but contrary to what you may have read online, forex trading is not a get rich quick opportunity. The amount earned is determined more by the amount of money being risked rather than how good the strategy is. The old saying “It takes money to make money” is an accurate one, forex trading included. Of course, forex losses can exceed deposits.
5) Avoid Common Trading Mistakes
Traders are often correct on the direction of a market, but fail when it comes to how much profit they make when they are right vs. how much they lose when wrong. Bottom line, traders tend to make less on winning trades than they lose on losing trades. This is just one of the top mistakes traders make. Learn more about mistakes—and how to avoid them in Traits of Successful Traders.
6) Understand What Moves Markets
Major economic data can move the forex market. It is this very movement, or volatility, that many traders seek when making decisions. Forex traders are drawn to news releases for their ability to move forex markets. ‘News’ refers to economic data releases such as GDP and inflation, and forex traders tend to monitor such releases considered to be of ‘high importance’. Check out our free trading guides to learn more about this popular approach to forex trading.
7) Watch Winning Traders for Tools & Techniques
Anyone who wants to be a forex trader should find a successful trader or two to watch for ideas. The book Market Wizards is considered a go to for many. Free webinars by top traders are also a way to learn how winners operate in the market and uncover fresh insights or ideas. Our daily live webinars are tailored to those just starting out and for those with some experience trading forex looking to improve their knowledge of specific areas of technical analysis. Register for our educational live webinars.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.