Investing > Learn Forex Trading

Learn Forex Trading

Don’t start trading until you know the basics. Learn forex and trade like a pro.

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Updated March 05, 2021

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

Would you get on the freeway without learning how to drive?

For the safety of yourself and those around you—hopefully your answer is a hard no.

When you start trading forex, you may not be risking your life, but you can easily risk the value of a new car. ⚠️

Before you start making trades, it’s important to know what you’re getting into and how to take care of your money. 

Forex can seem overwhelming at first—but it’s not impossible to learn. This is a great time to start trading forex, as technology has simplified the market. If you can get a grasp on how the market works and the basic strategies, you’ll be ready to start trading.

If you’re not sure how to start educating yourself about forex, you’ve come to the right place!  This guide will help you understand the importance of educating yourself, the resources available to you to learn forex, and tips on how to focus your time. 

What you’ll learn
  • Understanding the Forex Market
  • The Importance of Learning Forex
  • Tips for Learning Forex
  • Managing Risk
  • Must-Know Forex Vocabulary
  • Simple Strategies to Start
  • Learning About Currencies
  • Opening a Micro Account
  • Time Needed to Learn Forex
  • Learning Forex: FAQs

Understanding the Forex Market 💱

Forex refers to the foreign exchange market, and essentially refers to changing one currency for another. Because they are worldwide, forex markets are open twenty-four hours per day. Forex traders earn money by trading pairs of currencies, expressed as EUR/USD (for euros and U.S. dollars). 

Currency is an Asset Class

Forex traders take advantage of currency as an asset class, which has distinct characteristics. Investors can profit from fluctuations in the exchange rate of currencies, or earn the interest rate differential between a pair of currencies. 

That might sound confusing, but basically, it means that you can profit based on the different interest rates that foreign currencies hold. As their worth fluctuates, you might buy and sell your positions. 

Why it’s Important to Learn Forex Before Trading❗

If you don’t understand the forex market, how could you expect to make a good trade? Don’t worry—you can get your arms around the basics of forex in order to start trading. It’s important to understand the basics of forex trading, key strategies for forex, and how to assess your risk. This will help you make well-informed trades—so at least if they don’t pay off, it’s not because you missed something obvious!

If you start trading forex without understanding what you’re doing, you could end up breaking the rules of your broker. You don’t want to be on the hook for a fine for something you didn’t even understand you were doing. Even the top forex brokers have regulations that you need to follow. 

Forex is an underregulated market—it’s kind of like the wild west of investment. This can be great news, but it also means that there are a lot of forex scams out there. For instance, a Florida trader (not to be confused with Florida Man) was recently charged for running a $57 million scheme—and this sort of thing happens regularly. 

You don’t want to end up being the victim of one of these scams, so you need to know what these alleged forex experts are talking about. In general, anyone who is promising you a way to get rich quick is likely not trustworthy. 

How to Learn Forex Trading 🎓

When you’re just beginning your forex education, it can be hard to know where to start. Don’t worry: we’re here to help! As you learn terminology and strategies, keep things simple. 

You don’t need to know every aspect of the forex market in order to start trading on a demo account, which is the hands-on experience many people need to really get a feel for the market. Depending on your learning style, you may want to do these steps in a different order—we just recommend that you feel confident about your education before you start trading with actual money!

Read Up Online 👨‍💻

The internet is a wonderful resource for people looking to learn all types of things, from the history of race car driving to how to start an alpaca farm (we don’t know what you’re into). Forex trading is no exception. There are tons of great resources (like this one!) for people looking to learn forex. There are also formalized training processes led by big names like Shoaib Ghuari for those who want a full course.

You can also find a forum where forex traders are sharing their experiences. Theory is important, but understanding how all of this works in practice will make you a better trader.

By observing forums, you will get a more realistic view of what is actually happening in the forex market. You might see people getting locked out of their accounts, which is why you need to find a reliable broker. 

Find a Great Broker 🤝

You will need an excellent, reliable broker in order to trade forex well. When you’re looking for a broker, you want to find one with low fees, a good reputation, and good customer support. They should also be regulated by top financial authorities.

There’s an app for everything—including forex. You should feel comfortable in your broker’s app, and be able to make trades easily. The top apps for trading forex will have good customer service, helpful charting tools, and useful features—like copytrading.

Make Sure Your Broker Has Excellent Education 👩‍🏫

Forex brokers offer e-books, courses, webinars, and recommendations from analysts. Once you’ve chosen the broker that’s right for you, go through their educational materials. 

If they’re from your broker, they’ll be free – and who doesn’t love that? Oanda has great educational materials, and most of the leading beginner’s forex brokers will offer useful resources, too. Since brokerages make money based on how much you trade, you can rest assured they will help you do just that. 

Master the Basics 🔒

Are you itching to throw some money on the line and start making gains? We can’t blame you—but we can try to slow you down just a bit. Don’t jump into forex trading until you have finished the courses that your broker offers, and mastered the basic concepts and terminology. 

Pop quiz! Can you define pips? Spreads? Do you have a strategy picked out? Have you selected your trading times? Don’t worry if you failed the quiz – it just means that you need a little more time in the learning phase before you buy your first position. (We promise the quiz wasn’t graded, anyway. And we’ll cover some of that later in this article!)

Of course, you can always start trading while you’re learning—just like let your friend who just got their learner’s permit drive you up the side of a cliff. But if you wait to start trading until you really have a strong footing in forex, you (and your portfolio) will be happy.

Learn Forex with a Demo Account 🚀

Demo accounts are a great way to start trading without risking the biscuit. Open a demo account with your broker so that you can trade only using virtual funds. 

This will let you test your theoretical know-how, and start to get a feel for the ups and downs of the market. You’ll start to notice patterns that emerge in the market, such as the head and shoulders pattern the US Dollar falls into occasionally.

Of course, demo accounts can’t quite prepare you for the emotional realities of trading. You’ll still feel differently once you have actual money on the line, and you’ll have to find a way to keep feelings out of your decision-making. But, it’s much better to make a few silly errors with virtual funds than with your hard-earned cash. 

Learn to Manage Risk Before Trading ⚖️

It can be tempting to dive in feet-first and make some high-risk, high-reward trades. You’re not going to be too surprised by our advice here: don’t! It’s very important to determine what level of risk you are comfortable taking on, and how to stay under that threshold in the forex market. 

There are a few basic tips we can give for how to manage your risk. Don’t max out your leverage—smaller leverage ratios can yield better results over time. And as a general rule, don’t use more than 5% of your portfolio for any single trade. 

💡 Helpful tip: If you want to get really serious, you can learn how to hedge your forex trades. Just know that some forms of hedging are not legal in the United States.

Terms to Know Before Learning Forex 📚

We’ve put together a handy list of terms that will help make your initial forex trading articles a little more clear. 

  • Leverage. This refers to using a small amount of your money to control a much larger amount of money.
  • Spreads. The difference between a broker’s sell rate and buy rate.
  • Spot market. The market where commodities are traded for immediate delivery (as opposed to the futures market). 
  • Pips. “Percentage in point” or “price interest point.” The fourth (usually last) decimal point when a pair is priced out. So, 0.0001 is 1 pip. 
  • Lots. The number of units of currency that you will trade. A standard lot is 100,000 units.
  • Currency pairs. The price quote of two currencies’ exchange rate.
  • Bid / ask price. The price for which a trader is willing to sell. 
  • Going long. Going long means the first currency is purchased while the second is sold. Going long on EUR/USD would mean buying EUR against USD – so you expect EUR to go up. 
  • Going short. Going short is the opposite: the first currency is sold in exchange for the second. Going short on EUR/USD would mean buying USD against EUR – expecting EUR to go down. 
  • Margin. The amount you must put down to open a position. 
  • Bullish/Bearish. Bullish refers to the market going up, while bearish refers to the market going down. 

Learn a Simple Strategy First 💡

There are many forex trading strategies out there. Some are fairly straightforward, while others are complex. Choosing a strategy and sticking to it can help you keep emotion out of trading. You’ll also want to use your strategy in the context of current events: for example, Germany’s expedited Coronavirus recovery could lead to its economy strengthening, and that means you should prepare for a stronger Euro. Here are a couple of strategies that can be a good fit for beginners.

Range Trading

Range trading and trend trading can both be good fits for beginners. Range trading refers to identifying the support and resistance lines of a particular pair.

The support line refers to the lowest a pair is likely to drop within current market conditions. The resistance line refers to the highest a pair is likely to go within current market conditions.

A chart with marked resistance and support lines, courtesy of TradingView.com.

When you’re range trading, you purchase the pair when it’s below its support line, and sell it when it rises past its resistance line. This strategy works well during a stable market, when your pair is not undergoing major fluctuations.

Trend Trading

Trend trading relies on lower lows and higher highs than range trading. Identify these lower lows and higher highs, then purchase the currency at a low point. Wait to sell until it goes past its most recent high point—or even longer if you think the pair will continue its upward trend. 

When you’re starting out, you don’t want to get into complex strategies that you don’t yet understand. You also don’t want to work with too many strategies. Identify a limited set of strategies that revolve around a limited set of currency pairs that you know well. This way, you can be efficient with your trades and avoid mistakes. 

Learn About the Currencies You Want to Trade 🌍

Economic and political news impacts the forex trading market. For example, Bitcoin hit a record high after being endorsed by Elon Musk. Government news also impacts how currencies are traded: Pakistan’s improving forex reserves have caught the eye of traders already.

Be sure to stay on top of political and economic news in the countries of your selected currencies. Sticking to a limited set of currencies can help make this more manageable. You’ll also want to check price trends and trader sentiment regularly. 

You should also select your currencies based on the times you’ll be able to trade forex. Some trading times are better than others. Different currencies have different markets, and they trade in different time zones. 

Select currencies that you’ll be able to fit into your regular schedule. It’s okay to be realistic—if you are not willing to get up in the middle of the night to watch price fluctuations in a market across the world, don’t buy into that position!

Open a Micro Account to Start Things Off 🤏

Have you mastered the basics, worked with a demo account, selected your currencies, caught up on world news, and made your trading plan? Congratulations: you’re ready to start trading with money! 

A micro forex account can be a great way to start experiencing the emotion of trading with real money while keeping your risk low. Start by making just small trades, so that you can gain experience but avoid losing large sums of money. This hands-on experience will further your forex education greatly. 

How Long Does it Take to Learn Forex Trading? ⏳

You can learn the basics of forex in as little as a week if you are dedicated and follow a plan. Many people might take a few months to read up on everything they need to know, work through their demo accounts and micro accounts, and then finally start trading for real. Ultimately, the time it takes to learn the basics will depend on how long you are able to spend studying, and your unique learning style.

Of course, after that, the learning never ends! Forex gives you an opportunity to learn more about different strategies, different currencies, and world events. You will continue learning forex as long as you trade—but that isn’t a bad thing. It’s a world that is yours to master. 

Conclusion

Educating yourself on forex is the best way to see real gains when you start trading. You don’t want to fall victim to scams, like the Lucrative Pips scheme that lost investors over $430,000. You also don’t want to make obvious mistakes or enter into trades with risk that’s higher than what you’re comfortable with. 

Once you learn the basics of forex, you’ll be able to start watching the news and connecting with other traders about strategies and experiences. Some aspects of forex trading will become second nature—and you might find yourself chatting at the dinner table about the major decline of USD/CAD. Others will continue to challenge you—but hey, that’s the fun, right? 

Learning Forex: FAQs

  • How Much Money Do You Need to Trade Forex?

    Many brokers will allow you to open an account with as little as $100. If you start trading forex with small amounts, just be careful not to use high leverage ratios that can eat up your margin in transaction fees.

  • How Can You Learn Forex Trading for Free?

    There are plenty of great free resources to help you learn forex, such as the Tokenist. The best beginner’s brokers will also have free courses, demo accounts, and other resources that you can use.

  • Why is Forex so Difficult to Learn?

    Forex is not more difficult than other markets, but it can be overwhelming due to the number of strategies and currencies out there. Keep things simple as you’re getting started.

  • Which is Easier to Learn, Forex or Stocks?

    Forex and stock market trading are comparably difficult to learn. However, forex trading is more liquid with better leverage, so it is often easier to trade and break into.

Start Forex Trading with a Trusted Broker

Fees
Average spread EUR/USD standard

N/A

0.9

All-in cost EUR/USD - active

N/A

0.363

Minimum initial deposit

$0

$250

General
Total currency pairs

105

93

Demo account?
Social / copy trading?
Rating
Fees
Average spread EUR/USD standard

0.9

Varies

All-in cost EUR/USD - active

0.363

N/A

Minimum initial deposit

$250

€100

General
Total currency pairs

93

50

Demo account?
Social / copy trading?
Rating
Fees

Average spread EUR/USD standard

N/A

0.9

Varies

All-in cost EUR/USD - active

N/A

0.363

N/A

Minimum initial deposit

$0

$250

€100

General

Total currency pairs

105

93

50

Demo account?

Social / copy trading?

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

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