How to start forex trading as a beginner

In this guide, we’ll discuss how to start forex trading as a beginner, covering everything from trading style to basic forex trading strategies to get to grips with the foreign currency market.

Feeling overwhelmed by the complexity of the forex market? Getting started is easier than most people might think. Once they grasp the basics and find a trusted leveraged trading provider, they’re ready to set their trading capital, utilize trading strategies, and trade currencies. In this guide, we’ll discuss how to start forex trading as a beginner.

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What is the forex market?

The foreign exchange market (“forex” for short) is the world’s largest financial market. Every second, traders buy and sell currencies in the form of currency pairs. If a trader buys EURUSD, for example, they are speculating that the euro (the base currency in this example) will strengthen against the US dollar (the quote currency).

The price quoted is the amount of the quote currency needed to buy the base currency. In the image below, we see that EURUSD closed at 1.15946, which means that 1 EUR costs 1.15946 USD. However, the only thing a trader needs to think about is whether the euro will strengthen or weaken against the dollar—buying if they think it will strengthen and selling if they think it will weaken.

Forex is a decentralized market, meaning there’s no controlling authority as there is with the stock market, where orders are routed through exchanges like the New York Stock Exchange. 

The forex market operates 24 hours a day, five days a week (closed weekends), and trading volume ebbs and flows as it dips in and out of peak times in major population centers. These are known as “trading sessions”, and include Sydney (21:00 to 06:00 UTC), Tokyo (00:00 to 09:00 UTC), London (08:00 to 16:00 UTC), and New York (13:00 to 22:00 UTC).

The Exness Terminal showing that EURUSD closed at 1.15946. As this image was taken on a Sunday, the market was closed.

The basics of forex trading: What every trader should know

A little knowledge can go a long way when trading the forex markets. No one can accurately and consistently predict the financial markets, but that doesn’t mean a trader’s success or failure hinges on luck.

The more an individual knows, the more confident they’ll be when they start trading, and that makes it easier to maintain discipline. They’ll also have the basic trading knowledge needed to implement plans and strategies while avoiding potentially costly mistakes.

So, for anyone who is here to learn how to trade forex as a beginner, they need to make sure they understand these basics before opening a trading account:

Types of forex markets

If an individual converts a large amount of euros to dollars when the exchange rate is favorable and then converts back for a profit, they’ve just participated in spot forex trading. It stipulates immediate delivery of the asset. With CFD forex trading, as well as futures and options, forex traders don’t need to take delivery of the underlying asset and can simply speculate on price movements.

Bid and ask prices

There are two prices tied to every forex pair: the bid price and the ask price.

The “ask” is the lowest price at which a currency pair can be bought. The “bid” price is the highest price at which a currency pair can be sold. The difference between the two is the “spread”. The wider the spread, the greater the trading costs. Spreads vary based on everything from forex brokers to market conditions.

The “bid” and “ask” prices for CADCHF in the Exness Terminal, with the spread (0.8 in this example) between them.

Lots and pips

A “lot” is a standard unit of measurement in forex, and is measured in standard lots (100,000 units), mini lots (10,000 units), micro lots (1,000 units), and nano lots (100 units).

A pip is the smallest unit that a price can move, usually defined as the fourth decimal place (0.001). If EURUSD jumps from 1.0500 to 1.0510, that’s a change of 10 pips.

Leverage and margin

Trading with leverage, also known as trading “on margin”, means opening larger positions than a trader’s balance would typically allow. If they use 1:100 leverage, for example, they can open a position worth 1,000 USD with just 10 USD.

Margin is a percentage of the total trade, so 1% on 1,000 USD equates to a deposit requirement of 10 USD.

Leverage in forex greatly increases market exposure, enabling a trader to profit from even the smallest price movements. However, if the market swings against them, they stand to lose a lot of capital.

Forex trading accounts offer a wide range of leverage ratios, and these vary by currency pair and region. Check your leverage in the Exness Terminal and change it in the Personal Area.

Market participants

There are three main participants in the forex market. 

Commercial traders form the backbone of the market and are the main market makers. They include financial institutions that use the market to hedge and protect their own and their clients’ money. 

Non-commercial traders, including hedge funds, are large speculators focused on generating big profits. They make million and even billion-dollar trades that significantly impact the market. 

Retail traders include individual traders, and if you’re reading this guide on how to start forex trading as a beginner, that includes you.

Defining your trading style and analytical approach as a beginner

Before showing how to start forex trading as a beginner, an individual needs to consider how they will approach and analyze their trades.

A trading style defines how long a trader will hold trading positions.

Scalpers move quickly and seek to profit from minor adjustments, with trades open for just seconds or minutes. It can be an effective way to trade forex, but it requires a keen eye and rapid processing, and it isn’t suited to beginners.

Day traders open and close trades in a single day. Day trading sounds like a more relaxed approach, but it requires discipline and strong market knowledge. The same is true for position trading, where those positions are held for weeks, months, and even years.

Swing trading falls between these extremes and is more suitable for beginners. Swing traders hold positions for days or weeks, profiting from medium- to long-term swings supported by detailed analysis.

Typically, that analysis will consist of historical price data, charts, patterns, and technical indicators, also known as technical analysis.

These can be as complicated or as simple as a trader wants them to be, but as a beginner, it’s best to start small.

Beginners can check the chart options on their chosen trading platform. They can use candlestick charts to study open, close, high, and low prices in timeframes of hours or a single day. Traders also incorporate trading indicators like the relative strength index or Bollinger Bands to gauge when something is overbought/oversold, and go from there.

Traders also add elements of fundamental analysis, which focuses on economic data. Again, it can be complicated, but it doesn’t need to be. They watch financial news channels and read breaking news reports; Traders need to pay attention to anything that could impact a currency’s value, such as changes in GDP projections, employment data, interest rates, trade tariffs, and other economic factors.

The final aspect of market analysis is sentiment analysis, which focuses on how the market “feels”. The simplest approach to market sentiment is to check the total open positions on specific currency pairs. In the image below, for example, we can see that there are 75% buy orders for USDCAD and 25% sell orders.

Strong buying sentiment could indicate a positive uptrend, as shown here in the Exness Terminal.

Beginner-friendly forex trading strategies

Beginners need to start with a simple forex trading strategy to get a feel for analysis and execution. If it works, keep doing it; if it needs improvement, they tweak it as they go. Here are some of the simplest trading strategies for those just learning how to trade forex as a beginner:

• Trend trading: This is a good forex trading strategy as it focuses on trends and doesn’t overcomplicate things. Simply find the prevailing trend (bullish or bearish) and then trade in the same direction.
• Range trading: This particular forex trading strategy uses support and resistance lines. These are areas that the price struggles to break. Once they identify the lines, range traders trade within them, buying at the support and selling at the resistance.
• Breakout trading: Also known as broken forex trading, this strategy uses support/resistance lines, but the difference is that breakout traders look for moments when the trend breaks either one of these lines and starts a new trend. They use indicators such as moving average convergence/divergence and the relative strength index to gauge the strength of a new trend.

An example of a trend following strategy, showing an open trade that began during a new trend and continued. Remember: there is no guarantee with any forex trading strategy, as various factors influence currency prices.

Defining trading capital 

Trading capital is the amount assigned to forex trading. It should never be taken from money used to pay bills and other expenses, and should always be an amount that the trader can afford to lose. No one should be trading currencies while worrying that the next big loss means they can’t afford to pay a bill.

Once a trader has calculated this amount, they consider the following:

• Position sizing: The maximum amount of capital to risk on a single trade, usually 1-2%.

• Risk-reward ratio: The target ratio for risk vs reward. So, 1:3 means a 100 USD risk and 300 USD potential reward.

• Risk management strategy:  The use of stop loss and take profit orders, and whether they’ll be defined by equity percentage, pips, or currency prices.

Understand the risks of trading forex

Foreign exchange trading carries significant risk. Nobody can truly predict where a currency pair’s price will swing, and there’s no guarantee of getting a return. Proper risk management certainly helps, but traders should always consider the inherent risks of the currency market before they make their first trades:

• The market is highly volatile, and prices can swing significantly from one minute to the next.
• Leverage greatly increases risk exposure.
• Buying and selling currencies all day can place great emotional strain on a trader and may lead to mistakes.
• A sudden change in interest rates can quickly and significantly impact currency values.
• Trading capital is always at risk.

How to trade forex as a beginner: Easy-to-follow forex trading steps

As you may have guessed by now, there is no easy or quick answer to the question, “How can I start forex trading as a beginner?” Trading is a learning process, and education never stops. Even the best traders are always seeking ways to improve, whether it’s by testing and adopting new strategies, expanding their analytical approach, or applying what they have learned to new currency pairs.

Individuals will learn as they trade, and that’s why it’s best to start with a free demo trading account from a trusted forex broker. Here, newcomers get a feel for how forex trading platforms work and can familiarize themselves with the markets while practicing strategies in real market conditions.

Once a new trader is ready to move into real money trading, it's recommended that they keep capital at a modest level and follow these steps on how to trade forex as a beginner:

Create your forex trading plan

A trading plan outlines a trader’s entire approach to forex trading. By creating a rigid plan, they are less likely to veer from your strategy and make emotional, impulsive, and ill-disciplined trades.

It should include everything from their routine and strategy to their preferred risk management tools and execution choice. See below for an example of a simple trading journal:

Choose your preferred currency pair(s)

Traders should avoid overextending by trading too many forex pairs at once. As a beginner making their first few trades, it’s unlikely they have the time or knowledge to properly analyze all of those currency pairs, which means they’re trading on hunches or out of boredom.

It's best to stick with major currency pairs like EURUSD, USDJPY, and GBPUSD. These offer the most liquidity, which means it’s easy to buy and sell quickly, and the spreads are often lower. There’s also less market volatility and a wealth of data to research.

The Exness Terminal showing open trades on EURUSD, USDJPY, and GBPUSD. Monitor the trades in the box at the bottom and keep the tabs open at the top to switch between charts.

Perform a market analysis

Whether an individual is purely a technical trader or wants to mix things up with some fundamental and sentiment analysis, it's best to pick a side and keep it simple.

For example, if we decide to limit our forex trading to GBPUSD, we may stick with simple candlestick charts set to a 1-day timeframe and use Bollinger Bands to measure market volatility. We can then wait for major economic news from either the UK or the US using financial news feeds (Financial Times, Bloomberg, etc.) to see how the market responds.

The buy/sell ratio indicates market sentiment, and by combining these factors, we can identify optimal moments to buy or sell.

Execute that first trade

Beginners don’t need to start trading forex right now. They don’t even need to place their first trade on the day they open an account. Just because the world is trading currencies around the clock doesn‘t mean you need to join them right away.

Bide your time. Wait for the right moment, and place your first trade when you’re ready.

Just make sure you use stop loss and take profit orders. These will protect traders from losing more than their capital allows and ensure automatic settlement at the target profit.

Image of an open trade in the Exness Terminal with both stop loss and take profit orders active at -5% and +5% equity.

Monitor progress in a trading journal

Regardless of experience, a trader should always consult their trading plan before trading; they read their trading journal after trading.

It’s a document/spreadsheet outlining the details of all their forex trades, including sections such as:

• Open date and time
• Close date and time
• Open price
• Close price
• Long or short
• Take profit
• Stop loss
• Risk-reward ratio
• Reasons for closing

Rapid currency price movements can startle even the most experienced traders, and we’re all prone to overcelebrating when things go our way. By keeping a trading journal, traders can eliminate the overconfidence that leads them to believe they did everything right, recognize that bad decisions happen, and gradually improve their trading skills.

Trading glossary

Currency pair A currency pair represents the value of one currency against another, such as EURUSD. It shows how many units of the quote currency are needed to buy one unit of the base currency.

Pip A pip is the smallest price movement in a currency pair, typically the fourth decimal place. It is used to measure changes in value and calculate profits or losses.

Lot A lot is the standard unit size of a forex trade. It determines how many units of currency you are buying or selling, with common sizes including standard, mini, and micro lots.

Spread The spread is the difference between the bid (sell) price and the ask (buy) price. It represents the cost of entering a trade and can vary depending on market conditions and brokers.

Leverage Leverage allows traders to control larger positions with less capital. While it can increase potential profits, it also significantly increases risk.

Margin Margin is the amount of money required to open and maintain a leveraged trading position. It acts as a deposit and is usually expressed as a percentage of the total trade size.

Stop loss order A stop loss order automatically closes a trade at a predetermined price to limit losses. It is a key risk management tool used by traders to protect their capital.

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Final thoughts

To learn how to start forex trading as a beginner, it’s essential to first understand the basics and how the market operates. Building a solid foundation will help new traders make more informed decisions and avoid common mistakes. Just as important is choosing a regulated forex broker, as legitimate providers operate under strict regulations and are better equipped to protect an individual’s funds, data, and overall trading experience.

Before placing any trades, traders carefully define their trading capital and only use money they can afford to lose. They also protect that capital by applying risk management tools such as stop loss and take profit orders, and always remain aware of the risks involved in forex trading. Finally, it's smart to develop a clear trading plan, track performance in a trading journal, and start with beginner-friendly strategies like trend trading and range trading. Over time, consistency and discipline will play a key role in improving trading skills.

Frequently asked questions

How can I start forex trading as a beginner?

To start forex trading as a beginner, learn the basics, choose a regulated broker, open a demo account, and practice simple strategies before trading with real money.

How much money do I need to start trading forex?

You can start forex trading with a relatively small amount, but it’s important to only use money you can afford to lose and apply proper risk management.

What is the best forex trading strategy for beginners?

Beginner traders often start with simple strategies like trend trading or range trading, as they are easier to understand and apply in real market conditions. Start with a simple beginner-friendly forex trading strategy to get a feel for analysis and execution. However, it is important to note that there is no single “best” forex trading strategy, as effectiveness depends on individual goals, risk tolerance, and market conditions.