Forex trading is the exchange of one currency for another to profit from changes in exchange rates. This beginner’s guide helps new traders start forex trading with confidence. It covers the defintion of trading forex , top trading platforms, apps, signals, tips, examples and techniques.
What is forex trading?
Forex trading, or FX, is a global market where people buy and sell foreign currencies. Just like you’d exchange money when traveling abroad, forex trading involves buying one currency while selling another, with the price based on how much people are willing to buy or sell it for.
Forex trading is different from crypto trading and it can be done in three ways:
- Spot market: The main forex market, where trades happen in real-time based on current prices.
- Forward market: Traders agree to exchange currencies at a future date with a fixed rate.
- Futures market: Similar to the forward market but conducted on an exchange with standardized contracts.
Most forex trades are made by large institutions, like banks or corporations, to profit or protect against currency value changes. For example, if a company expects the euro to weaken, it might trade euros for dollars to protect its earnings.
The forex market is open 24/5 and operates over-the-counter (OTC), meaning there’s no central exchange. Instead, banks and financial institutions worldwide handle trades.
History of forex trading
Now that you know what is forex in trading, let’s look at where it started. Forex trading has roots in ancient trade when metal coins were exchanged for goods.
The first forex market appeared in Amsterdam 500 years ago to stabilize exchange rates. In 1875, the gold standard tied currencies to gold, giving it value. By the 1900s, forex trading grew, especially in London.
The gold standard ended after the world wars as countries printed more money. Post-WWII, the Bretton Woods system pegged currencies to the U.S. dollar, backed by gold.
In 1971, President Nixon stopped the dollar’s gold convertibility, ending the gold standard and allowing currency values to be determined by market demand.
Benefits of forex trading
Here are some of the key advantages of forex trading,
- Forex is the largest market in the world, with trillions of dollars traded daily.
- You can trade Forex at any time, Monday through Friday, as it operates 24 hours a day.
- Starting capital can grow quickly, but it’s also risky. A small investment can potentially yield big returns with the right trades.
- Forex follows similar rules to regular trading, like stocks or bonds, so if you’re familiar with those, you can understand forex.
- Forex is more decentralized than stock or bond markets because there’s no central exchange. It’s a global network with direct participation from banks, institutions, and traders.
How forex trading works?
Forex trading works by buying and selling currency pairs. Forex trades always happen in pairs. For example, USD/ EUR means you’re trading the US dollar against the euro rupee. The first currency is the base currency, and the second is the quote currency. Here’s how does forex trading work:
- Bid and ask price: The bid price is what you’ll get when you sell the base currency, and the ask price is what you’ll pay to buy it. The difference between these prices is called the spread.
- Leverage: Leverage allows traders to control larger amounts of currency with a smaller investment. For example, with 50:1 leverage, you can trade $50,000 with just $1,000. However, leverage is risky because if you lose, you could lose more than your original investment.
- Going long or short: You can go long (buy) if you think the currency will increase in value, or go short (sell) if you think it will decrease in value.
- Analysis: Traders use technical analysis (looking at past prices) and fundamental analysis (examining economic factors) to predict future prices.
- Placing orders: Placing orders in trading involves selecting the type of order that best suits your strategy. A market order is used when you want to buy or sell immediately at the current market price, ensuring a quick transaction. A stop order triggers a buy or sell once the price hits a predefined level, often used to limit losses or lock in profits. A limit order allows you to set a specific price at which you are willing to buy or sell, ensuring that the transaction only happens at that price or better.
- Profit and loss: Profit is made when the currency moves in your favor. Loss happens if the price goes against you. Stop orders can help protect against big losses. Here is how to calculate both profit and loss in FX trading.
- Market liquidity: Forex is highly liquid, meaning you can buy or sell currencies quickly and at the price you want.
- Risk management: Traders use best ways and strategies to limit losses in forex trading, like diversifying investments and using stop or limit orders.
- 24/5 trading: Forex markets are open 24 hours a day, five days a week, so you can trade at any time, no matter your location.
Is forex trading legit?
Yes, forex trading is legitimate. It involves buying and selling currencies on the global market. However, it can attract scams, so it’s important to use regulated brokers and avoid offers that seem too good to be true. Always do your research and be cautious.
Forex trading scams
Some scams involved in forex trading that you should know about to avoid losses include:
- Ponzi schemes: Promising high returns using new investors’ money.
- Phony advisors: Fake experts misleading investors for personal gain.
- Unregistered brokers: Operating without proper licenses or regulations.
- High-pressure sales: Pushing quick deposits with unrealistic promises.
- Refusing withdrawals: Preventing you from taking out your funds.
- Automated systems: False claims of guaranteed profits with losing systems.
How to start forex trading?
To start forex trading, learn the basics like currency pairs and factors that affect prices. Choose a strategy (technical or fundamental analysis) and create a trading plan with goals and risk limits. Set up an account with a regulated broker offering a good platform.
Practice with a demo account, then start small with real money. Manage risk, monitor your trades, and stay informed to adjust your strategies as needed.
Let’s dive deeper into trading strategies, trading platforms and brokers, and how to open a forex account.
Forex trading platforms
A forex trading platform is a software that allows traders to buy and sell currencies. It provides tools like charts, indicators, and trade execution features to help manage and analyze trades. Popular platforms include MetaTrader 4, MetaTrader 5, and TradingView.
MetaTrader 4 (MT4) and MetaTrader 5 (MT5)
MT4 and MT5 are popular platforms for forex trading with features like advanced charts, automated trading, and customizable indicators. They are suitable for both beginners and experts, but the interface might feel old, and some tools can be confusing for beginners.
TradingView
TradingView is a great charting platform with real-time updates and social features to share trade ideas. It’s perfect for charting but doesn’t support automated trading, and backtesting is limited.
cTrader
cTrader is designed for high-frequency traders, offering advanced charts, automated trading, and copy trading. It’s good for both beginners and experts, but it requires some learning and uses a different programming language for automation.
ZuluTrade
ZuluTrade is a social trading platform where you can copy top traders. It’s great for beginners to learn from others, but it has fewer customization options and is less suitable for experienced traders.
NinjaTrader
NinjaTrader offers advanced charting and automated trading with low costs and no deposit minimum. It’s good for practice with simulated trading, but it has a steep learning curve and isn’t available with all brokers.
Forex trading strategies
Forex trading strategies are methods traders use to make decisions in the forex market. These strategies help identify opportunities and manage risks, using factors like price movements, market trends, or economic data.
The right strategy depends on a trader’s goals and experience, whether for short-term or long-term trading.
Day trading
Day traders buy and sell within the same day, trying to profit from short-term price changes. They avoid overnight risk and rely heavily on technical analysis.
Scalping
This is a very short-term strategy where traders make lots of quick, small trades to capture tiny price movements, often using high leverage to increase profits.
Swing trading
Swing traders look to profit from price movements over a few days to weeks. They enter trades at key levels (support or resistance) and aim to capture short-term market swings.
Range trading
Traders using this strategy focus on prices moving within a set range. They buy when the price hits a low point (support) and sell when it hits a high point (resistance), expecting the price to reverse.
Trend trading
This strategy aims to profit from a currency moving in one direction (up or down) over time. Traders follow the trend and try to buy when the price is rising or sell when it’s falling.
Position trading
This is a long-term strategy where traders hold onto positions for weeks, months, or even years, aiming to profit from large market movements based on fundamental analysis (like economic news).
Carry trading
This strategy involves borrowing in a low-interest currency and investing in a high-interest currency. The goal is to profit from the difference in interest rates, as well as from potential price changes.
Price action trading
This strategy involves making decisions based on the actual price movements of currency pairs, rather than using indicators. Traders look at price charts, patterns, and market behavior to predict where prices will go.
Forex trading apps
In the table below, you can find the best forex trading apps, account minimums, fees, available forex pairs, and how to trade safely with minimum costs.
| Forex trading broker | Rating | Account minimum | Fees | Forex pairs | Best for | U.S. customers |
|---|---|---|---|---|---|---|
| IG | 4.7 | $0 | Spread costs, overnight financing, inactivity fees | 80 | Overall best | No(via tastyfx) |
| XTB | 4.4 | $0 | Spread costs, overnight financing, inactivity fees | 71 | Low costs | No |
| AvaTrade | 4.3 | $0 | Spread costs, overnight financing, inactivity fees | 55 | Beginners | No |
| Pepperstone | 4.6 | $0 | Spread costs, overnight financing, inactivity fees | 90+ | Advanced traders | No |
| CMC Markets | 4.6 | $0 | Spread costs, overnight financing, inactivity fees | 175+ | Active traders, trading experience | No |
| FOREX.com | 4.5 | $100 | Spread costs, overnight financing, inactivity fees | 87 | Mobile trading | Yes |
| Saxo | 4.5 | $0 | Spread costs, currency conversion fees | 225 | Range of offerings | No |
| Tastyworks | 4.5 | $250 | Spread costs, overnight financing, inactivity fees | 80+ | U.S. traders | Yes |
Forex trading hours
Forex market hours refer to the periods when the foreign exchange market is open for trading. The market operates 24 hours a day during weekdays but closes over the weekend. Here’s a breakdown of the trading hours by session:
- New York: 8 a.m. to 5 p.m. (EST)
- Tokyo: 7 p.m. to 4 a.m. (EST)
- Sydney: 3 p.m. to 12 a.m. (EST)
- London: 3 a.m. to 11 a.m. (EST)
Although the market is open around the clock, it is more active during the overlap of the London and New York sessions, which accounts for about 50% of the daily trading volume. The forex market is open five and a half days a week, from Sunday 5 p.m. EST to Friday 5 p.m. EST.
How to open forex trading account
To open a forex trading account:
- Select a reliable forex broker.
- Complete the registration process and provide the required information.
- Submit the necessary identification documents.
- Choose the account type (standard, mini, or managed) based on your needs.
- Fund your account via bank transfer or card.
- After verification, download the broker’s trading platform.
- Practice with a demo account to familiarize yourself with the platform.
- Start trading, beginning with smaller amounts to minimize risk.
Pro Tip
Ready to start your Forex trading journey? Dive deeper into strategies, platforms, and tips that will help you trade like a pro in 2025. Be sure to visit our trusted forex brokers to guide you in making the right investment choices. Gain valuable knowledge on stocks, Forex, CFDs, cryptocurrencies, and broker reviews to discover trustworthy platforms.
Conclusion
Forex trading offers great potential for those willing to invest time in learning and practicing. By starting small, choosing a reliable broker, and applying solid strategies like risk management and market analysis, beginners can build their confidence and work toward long-term success.
Stay patient, keep learning, and approach each trade with caution to maximize your chances of achieving financial goals in the dynamic world of forex trading.
