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BEGINNERS GUIDE TO ONLINE FOREX TRADING (2024)


TABLE OF CONTENTS

 1.  Beginners Guide To Online Forex Trading (2024)
 2.  Chapter1:  What Is Forex Trading?
 3.  What is the difference between Forex trading and stock trading?
 4.  Chapter Two: Understanding Currency Pairs
 5.  Chapter Three: Advantages Of Online Forex Trading
 6.  Chapter Four: How Do You Start Forex Trading?
 7.  Chapter Five: Forex Trading Strategies
 8.  Chapter 6: Risks Of Forex Trading
 9.  Chapter Seven: How Do You Make Money In Forex Trading
 10. Chapter 8: Forex Scams To Avoid
 11. Enjoyed this? Share with your friends

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CHAPTER1:  WHAT IS FOREX TRADING?

Forex trading involves the buying & selling of global currencies in the forex
market with the objective of making a profit on the fluctuations in the exchange
rate.

To open a trade, a trader must choose a currency pair, and the direction they
expect the exchange rate to move

Simply put, you buy a currency when you believe its value is going to appreciate
(go up) against the other currency or you sell a currency when you believe its
value is going to decrease (go down) against the other currency. 

When you exit the trade, the difference between the trade's entry & exit price
determines your profit or loss.

Exchange rates are always changing and fluctuating, and this happens because of
different factors. Due to these fluctuations, it becomes possible to make a
profit from speculative trades.

Foreign Exchange is the World’s largest and most active market. It operates
every day except the weekends, and its volume reaches up to US$5 trillion a day.
This volume is larger than all the other markets combined!!

For example, in 2013 the average daily trade volume on wall street was a paltry
US$169 billion. The forex market is very liquid, one can buy and sell currencies
instantly i.e. there are always buyers and sellers at any given time when the
markets are open.


WHAT IS THE DIFFERENCE BETWEEN FOREX TRADING AND STOCK TRADING?

Stock trading is the buying and selling of shares from individual companies.
Forex trading is the simultaneous buying and selling of currencies to profit
from the change in the exchange rate.

Other differences between forex and stock trading are:

 * The Forex market is a global, decentralised, over-the-counter exchange and
   all transactions and participants are confidential. Stock markets are based
   at a single location and public records are kept of buyers and sellers.
 * Forex trading has a low cost of entry. To make serious profits, stock traders
   use large amounts of money, which is not an option for traders with limited
   incomes.

Forex trading is not investing. Forex traders never take ownership of the asset
being transacted.

With Forex trading, the trader is speculating on the future value of a currency
pair and to call it an investment would be incorrect.




CHAPTER TWO: UNDERSTANDING CURRENCY PAIRS

Currencies are always traded in pairs—the value of one unit of currency doesn’t
change unless it’s compared to another currency. Forex transactions involve two
currencies, which form a so-called currency pair. One currency is bought, while
the other is sold. 

Consider the USD/ZAR currency pair. If you buy this pair, you will be buying
dollars and selling rands.

If you sell this pair, you will be selling dollars and buying rands (ZAR is the
international currency symbol of the South African Rand).

WHICH ARE THE MOST TRADED CURRENCY PAIRS?

 *  EUR/USD.
 *   USD/JPY.
 *   GBP/USD.
 *   AUD/USD.
 *   USD/CHF.
 *   USD/CAD.
 *   EUR/JPY.
 *   EUR/GBP.

Most currency traders stick to these pairs because they generally have high
volatility.

The higher the volatility, the higher the chances of finding profitable trade
setups.

We would suggest that you start out with these pairs too and expand as you gain
more knowledge.


MAJORS, MINORS & EXOTIC CURRENCY PAIRS

1) Major Currency Pairs: The major pairs are the most highly traded currency
pairs in terms of global trading volume, and they account for a volume of around
70%.

The are 7 major currency pairs, and these are generally the currencies of the
most stable and well-developed economies. The major currency pairs include
EUR/USD (Euro Dollar against the US Dollar), USD/JPY (US Dollar against the
Japanese Yen), GBP/USD (Great Britain Pound against the US Dollar), USD/CHF (US
Dollar against the Swiss Franc), AUD/USD (Australian Dollar against the US
Dollar), USD/CAD (US Dollar against the Canadian Dollar), NZD/USD (New Zealand
Dollar against the US Dollar).

2) Minor Currency Pairs/Cross Pairs: Cross currency pairs are the crosses of
currencies in the majors but don't include USD. They are typically less liquid
and more volatile than the Major pairs.

The minor/cross-currency pairs account for almost 15% of global forex trading
volume. The important cross pairs are EUR/GBP (Euro against the Great Britain
Pound), EUR/JPY (Euro against the Japanese Yen), GBP/JPY (Great Britain Pound
against the Japanese Yen), NZD/JPY (New Zealand Dollar against the Japanese
Yen), CAD/CHF (Canadian Dollar against the Swiss Franc), AUD/JPY (Australian
Dollar against the Japanese Yen).

3. Exotic Pairs: Exotics are generally major paired against a currency of an
emerging economy. The examples include USD/ZAR – (US Dollar against the South
African Rand), GBP/NOK (Great Britain Pound against the Norwegian Krone) etc.



HOW TO READ A FOREX QUOTE

What Is A Currency Quote?

Currencies are always quoted in pairs. Reading a forex quote is one of the basic
things you should do as a trader.

Let’s take for example the USD/EUR is the U.S. dollar/euro. Using this
quotation, the value of a currency is determined by its comparison to another
currency.

Let's suppose the quote of EUR/USD=1.32105

What does it mean? It simply means that 1 Euro=1.32105 US Dollar. You will
notice that in Forex we have more than the usual 2 decimal places after the
comma. In other words, we go beyond the cents.



Base currency

The base currency is the one that is quoted first in a currency pair.

Using EURUSD as an example, the Euro would be the base currency. Similarly, the
base currency of GBPUSD is the British pound (GBP).

Quote currency

By process of elimination, you know that the quote currency is the one that
comes second in a pairing.

For both the EURUSD and the GBPUSD, the US dollar is the quote currency.



You Can't Make Money if They Don't Move

There are essentially two ways in which any currency pair can move higher or
lower.

 1. The base currency can strengthen or weaken
 2. The quote currency can strengthen or weaken

Because the Forex market never sleeps and thus currency values are always
changing, both the base currency and quote currency are in a constant state of
flux.



In our example, if the Euro (base currency) were to strengthen while the US
dollar remained static, the EURUSD would rise. Conversely, if the Euro weakened
the pair would fall, all things being equal.

If on the other hand, the US dollar (quote currency) were to strengthen, the
EURUSD would fall. And if the USD weakened, the currency pair would rally as the
Euro would gain relative strength against its US dollar pairing.



here the USD was weakening and the pair was rising

All of the hypotheticals above assume that nothing else has changed for the
pair.

The Dynamics of Buying and Selling Currencies

One area that often confuses traders is the idea of buying and selling
currencies.

In the stock market, you can either buy (and sometimes sell) shares of stock.
There are no pairings, and the value of one stock is not dependent on that of
another.



However, in the Forex market, all currencies are paired together. So when you’re
ready to place a trade, are you buying or selling?

The answer is both.

For example, if you sell the EURUSD (also referred to as going “short”), you are
simultaneously selling the Euro and buying the US dollar.

Conversely, if you buy the EURUSD (also referred to as going “long”), you are
buying the Euro and selling the US dollar.

Make sense?



If not, feel free to review this section as many times as necessary.

To clarify, this does not mean you have to place two orders if you want to buy
or sell a currency pair.

As a retail trader, all you need to know is whether you want to go long or
short. Your broker handles everything else behind the scenes.

There’s also only one price for each pair. Remember that a currency’s value
depends on the currency sitting next to it.

At this point, you should have a firm understanding of what a currency pair is
as well as the dynamics of buying and selling.





CHAPTER THREE: ADVANTAGES OF ONLINE FOREX TRADING

1.)  The forex market is open 24hrs/day, five days a week. From the Monday
morning opening in Australia to the afternoon close in New York the forex market
never sleeps.

This is awesome for those who want to trade on a part-time basis (even if you
are employed full-time) because you can choose when you want to trade.

Brokers like Deriv even have the popular synthetic indices that you can trade
24/7 including weekends and holidays!

2.)  You can use leverage in forex trading. In forex trading, a small deposit
can control a much larger total contract value.

Leverage gives the trader the ability to make nice profits, and at the same time
keep risk capital to a minimum.



For example, a forex broker may offer 500-to-1 leverage, which means that a $50
dollar margin deposit would enable a trader to buy or sell $25 000 worth of
currencies.

Similarly, with $500 dollars, one could trade with $250 000 dollars and so on.
While this all presents a chance for increasing profit, you should be warned
that leverage is a double-edged sword.

Without proper risk management, this high degree of leverage can lead to large
losses.  We will discuss this later.  

3.)  There is high liquidity in the forex market. Because the forex market is so
enormous, it is also extremely liquid.

This is an advantage because it means that under normal market conditions, with
a click of a mouse you can instantaneously buy and sell at will as there will
usually be someone in the market willing to take the other side of your trade.
You are never “stuck” in a trade.

You can even set your online trading platform to automatically close your
position once your desired profit level (take profit order) has been reached,
and/or close a trade if a trade is going against you (a stop-loss order).



4.)  There are low barriers to entry in forex trading. Getting started as a
currency trader does not require lots of money.

Online forex brokers offer “mini” and “micro” trading accounts, some with a
minimum account deposit just of $5 or less(We will look at different brokers in
later sections). 



This makes forex trading much more accessible to the average individual who
doesn’t have a lot of start-up trading capital.

It also means you can start without risking significant amounts of capital and
you can scale up as needed.

6.)  You can practice online forex trading using virtual money.

Most online forex brokers offer “demo” accounts that allow you to practice your
trading and build your skills, along with real-time forex news and charting
services. 

The demo accounts are free and you can open one at any time without any
obligation. 

Demo accounts are very valuable resources for those who are “financially
hampered” and would like to hone their trading skills with “play money” before
opening a live trading account and risking real money. 



Demo accounts allow you to get a feel of the trading process without using your
real money. Every trader should start trading with a demo account before risking
real money.

We will show you how to open a demo account in the following sections. You can
even enter demo contests and stand a chance of winning real money! Learn more
about that here.

7.) You can trade forex from anywhere in the world. With forex trading, you can
trade from anywhere in the world as long as you have a device with an internet
connection.

This means that with forex trading you choose to settle in any part of the world
and still continue your trades. You can still trade even when there is a level 5
lockdown in your country.



You can trade at home in your pyjamas, report to no boss and not have to keep up
with those nosy and irritating co-workers.

Forex trading can offer one a possibility of being their own boss and if done
well it can pay handsomely.

8.) Some brokers give bonuses that can be traded on your live account. These
bonuses are given even when you do not make a deposit. However, these should be
used with caution.

9.) You can make money by copying the trades of more experienced traders via
copy and social trading.





CHAPTER FOUR: HOW DO YOU START FOREX TRADING?

The first step to start trading forex is to choose a reputed & regulated forex
broker, and then open an account with it.

For trading forex, you have to signup with a regulated Forex broker to place
your real trades in the market. There are over 1000 forex brokers worldwide.
Beginner traders may end up getting confused as to which broker to choose as
some of the brokers are scammers.

We have over 10 years of forex trading experience and we have extensively tested
and reviewed a lot of forex brokers. Below is a list of the trustworthy brokers
that we recommend.

You can read the reviews for the individual brokers to learn more.


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You will also need some capital to deposit into your account. We recommend you
start with a minimum of $50 capital.

$500 would be even more ideal for a start as it will allow you to ride out any
short-term reversals that may go against you.



CHAPTER FIVE: FOREX TRADING STRATEGIES

Successful forex traders follow a sound trading strategy. Most forex day traders
rely on 2 types of strategies which are broadly divided into ‘Technical
analysis' & the ‘fundamental analysis.

With technical analysis trading, you are basically relying on the price chart,
and trading based on the chart patterns, and technical tools like candlesticks,
moving averages etc.

On the other hand, fundamental trading involves trading long term based on
macroeconomic factors of a country like their employment data, Retail Sales,
Central bank's interest rates etc. There are simple and advanced trading
strategies that cater for traders with different abilities.

We will give you brief idea of these 2 trading strategies in this chapter.





FUNDAMENTAL ANALYSIS

Fundamental analysis mainly involved trading based on news releases.

Fundamental Analysts believe that analysing a country’s economic indicators such
as inflation, economic growth rates, interest rates and monetary policy &
unemployment etc. would determine the price of currency and base the decisions
of currency movement by analysing these factors.

There are plenty of online Forex news calendars available for free if you want
to make it your sole trading strategy.

Also, you can get an idea of how a particular information may affect the market
movement upward or downward.

Learn more about Fundamental analysis

TECHNICAL ANALYSIS

Technical analysis is the most popular trading strategy & it basically involves
trading off the charts.

Learning this strategy is important for both short-term day traders & long-term
swing traders. A technical trader focuses on the historical price of the asset
to make his/her decision on the future market movement.

According to technical analysis theory, the emotions of the market participants
are reflected in the current & historical price that is visible through the
charts.

Technical traders also use various indicators & chart patterns to buy or sell
currency pairs in the forex market.

Learn more about Technical analysis






CHAPTER 6: RISKS OF FOREX TRADING

Risk 1 – Volatility: The Forex market is extremely volatile at times. While this
volatility presents opportunities for making a profit, it also can mean that the
market can go against you in a very short space of time and you can make a big
loss

Risk 2 – Unpredictability: The Forex market is not something you can predict
with 100% accuracy. There are just too many factors and actors on the market for
it to be fully predictable. Even the most profitable traders have losing trades
time and again.

Traders need to set a win-loss target ratio where they account for some losses
and use a strategy to minimise them and be profitable in the long run

Risk 3 – Leverage: CFD trading requires using leverage. Leverage is a tool used
in trading to amplify your profits, but it also amplifies your losses which are
automatically deducted from your trading account. Your account balance can be
wiped out with a single bad trade.

Risk 4 – Interest: In some cases, interest will be charged on your trades. For
example, interest can be charged when you carry trades overnight and your broker
will take funds from your account to pay this fee.

Risk 5- Emotions & Psychology: Trading with real money comes with a whole range
of emotions that can mess up your thinking and lead you to bad decisions which
cost you.

Risk 6- Rushing to trade live funds: Most beginner traders think that it is easy
to make money in the forex markets and they rush to trade real funds before
understanding how the markets work. This leads them to losses that could have
been avoided if they had taken the time needed to learn

Risk 7- Forex Scams: There are a lot of scammers out there who are ready to
pounce on naive people in the name of forex.




CHAPTER SEVEN: HOW DO YOU MAKE MONEY IN FOREX TRADING

The main goal of trading forex is to make money right? So how do you make money
in forex trading?

As discussed on the part on reading a Forex quote, trading currency in the Forex
market centers around the basic concepts of buying and selling.

Let's take the idea of buying first. If you bought something (e.g a house) and
it went up in value and you sold it at that point, you would have made a
profit…the difference between what you paid originally and the greater value
that the item is worth now. Buying in currency trading is the same way.

Let's use an illustration below.

This trade had a 100 pip profit in about 6 hours (1.20615-1.19605= 100 pips)
This is the difference between the entry and exit prices.

To understand the 100 pip profit in monetary terms, you would need to know the
lot size used in the trade. You can read about lot sizes in the glossary
section but for the purposes of this lesson, I will just put a table showing the
potential profit from different lot sizes.



As you can see, the 100 pip profit would vary from $10 to $1000 depending on the
lot size.

Now let's take a look at how a trader can make a profit by selling a currency
pair. This concept is a little trickier to understand than buying. It is based
on the idea of selling something that you borrowed as opposed to selling
something that you own.

In the case of currency trading, when taking a sell position, you would borrow
the currency in the pair that you were selling from your broker (this all takes
place seamlessly within the trading station when the trade is executed) and if
the price went down, you would then sell it back to the broker at the lower
price.

The difference between the price at which you borrowed it (the higher price) and
the price at which you sold it back to them (the lower price) would be your
profit. For example, let’s say a trader believes that the USD will go down
relative to the JPY.



In this case, the trader would want to sell the USDJPY pair. They would be
selling the USD and buying the JPY at the same time. The trader would be
borrowing the USD from their broker when they execute the trade. If the trade
moved in their favour, the JPY would increase in value and the USD would
decrease.

At the point where they closed out the trade, their profits from the JPY
increasing in value would be used to pay back the broker for the borrowed USD at
the now lower price. After paying back the broker, the remainder would be their
profit on the trade.

For example, let’s say the trader sold the USDJPY pair at 122.761. If the pair
did, in fact, move down and the trader closed/exited the position at 121.401,
the profit on the trade would be 136 pips.



By now you should have an understanding of how profits are made in Forex. Losses
are made when the pair moves in the opposite direction to your position. For
example, if you sell a pair and it rises, you make a loss equal to the pips that
the pair would have moved. In monetary terms, the loss will also be related to
the lot size.

In short, if you buy a pair and it rises, you make money. If you sell a pair and
it falls, you also make a profit. Losses are made when you sell a pair and it
rises and when you buy a pair and it falls in price.



So the success of any trade you will take depends on making the correct forecast
of the pairs price movement. To make these forecasts, traders use technical and
fundamental analysis and various forex strategies.


CHAPTER 8: FOREX SCAMS TO AVOID

There a lot of forex scams to be wary of. Forex trading is not a scam but there
are some people who use Forex to scam you. Some of the common methods used by
scammers are below.

Account management

This is where someone invites you to ‘invest' your money with them so that they
can trade on your behalf and you share profits. They can promise you profits of
up to 300% in 30 days.



They usually ask you to transfer the money using money transfer methods like
mobile money and there will not be any physical encounters between you and the
trader.

When you begin by investing smaller amounts they usually pay you as a way of
enticing you to invest larger amounts. If you invest larger amounts they will
then vanish with your money and change phone numbers.

Never invest in these account management schemes as you will lose your money.
You should learn to trade on your own or copy the trades of verified
professional traders.

Sale of Indicators

This involves the scammer selling you an ‘indicator' that does analysis for you.
This is meant to make trading easy for you as the indicator will tell you when
to buy or sell currencies.



The problem is that the indicator will be ineffective i.e it will give wrong
signals and you will have bought a useless thing. Indicators can be sold for
anything from $50- $300 so you will have lost a lot of money.

To avoid this scam, you should learn to read price action on your own. It's a
long route to profitability but its worth it if you become a profitable trader.
I have also provided some free forex indicators for you on this site.

Forex signals

Another scam method is when the scammer charges you for providing trading
signals. This is supposed to make it easy for you so that you will not do
analysis on your own but you will be told what to buy or sell.

The problem is that their signals may be ineffective and you will lose money
using them. So you will have paid for a useless service.



Rather, we would suggest that you sign up for a forex copytrading service. This
will allow you to copy the trades of successful traders in real time and make
profits. You will be able to verify the historical perfomance of these traders
before engaging them.

this articel explains all you need to know about forex copytrading.




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and be willing to accept them in order to invest in these markets. Don’t trade
with money you can’t afford to lose. This is neither a solicitation nor an offer
to Buy/Sell futures, options, or currencies
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