Currently, the volume of forex operations runs in trillions (counted in U.S. dollars), so it’s not a surprise that you may be googling right now how long does it take to learn forex trading to make money. The answer is: the length and slope of your learning curve depend on what and where you learn. To help you in your noble undertaking, we offer a comprehensive beginners’ guide on all important aspects of forex trading, including what, when, and how to do, what strategies to choose, and what to avoid to make your ride smooth and financially successful.
Top 3 Best Forex Brokers for Start
Getting Your Feet Wet with Forex
What does it mean to get started with forex? Forex stands for “foreign exchange”, the buying and selling of different currencies made for profits. Starting forex trade means getting an education, getting some virtual trading practice, picking a reliable broker, opening a tiny account, getting more practice, and then moving on to large-volume trades. It’s not about dumping all your savings into the trade immediately. By starting slow, you’ll avoid many painful losses and will not lose your inspiration. And that’s the key to becoming a successful trader.
The truth is, many beginners lose their money in the first trading year and quit forex for good. We don’t want such a fate for you, that is why we’ve compiled this extensive guide on mastering this craft. Learn forex trading step by step, do more research, and don’t act recklessly. Then your path to good profits will be steady and safe.
- The Bretton Woods system pegged USD to gold, and all other currencies to USD, thus making the exchange prices rigid. Only after dismantling the system, profitable forex trading became possible.
- Types of accounts: they depend on the money lot sizes you can trade. Micro account permits lots up to 1,000 currency units, mini account permits lots up to 10,000 currency units, and standard account permits lots up to 100,000 currency units.
- Strategies: they are specific methods of trading, suitable for long-term or short-term operations. Position, swing, day, and scalping strategies are the most popular among beginners and non-beginners alike.
- Control of emotions is one of the essential requirements for successful trading. Panic, unfounded optimism, or FOMO will inevitably lead you to losses. So carefully and dispassionately measure your every step (and learn to do it, if you know that you are overly emotional).
- Essential terminology of the forex trade includes account, ask, bid, bullish and bearish markets, leverage, margin, pip, spread, and CFD. Explore these concepts carefully.
- Getting started with forex requires some preparatory work on your part: learning the basic concepts and ideas, getting some virtual trading practice, picking a reliable broker, opening a tiny account, getting more practice, and then moving on to large-volume trades.
The Eternal Question of Money: How Much to Own to Start Forex
You may think that you’ll need quite a lot of money to start trading but that’s not true. With the system of margins (mind, we mean forex margins here) and leverages, you may enter the market with as little as $100. This sum can be leveraged to $1,000, which is usually the threshold for a micro account.
However, it’s better to have more money in your account. Then you’ll get through possible losses and move on to making profits when the trends reverse or the price bounces back.
What Is Currency Trading, To Begin With?
Currencies are traded in pairs, where one currency is used to pay for another currency. The principle of making profits is either exchange rate, or interest rate differential. But in forex trading for beginners, exchange rates constitute the primary point of interest.
For example, you have a certain sum in dollars and there are reasons to believe that soon the euro will go up in price. You buy euros for your dollars and wait.
- If your beliefs are true, you will make profits (if the euro becomes more expensive, you will sell it for more dollars than you paid at the beginning).
- Similarly, if the euro retains its price or even moves down, you face losses, either in trading fees or through exchange rates.
That’s why currencies at the forex market are quoted in pairs, like USD/EUR, and the price is presented in pips (percentage in points). It’s the smallest step of price changes, 1/100 of 1%. Pips are digits after the point, usually up to the 4th decimal place. For example, for the U.S. dollar-based pairs, one pip will be $0.0001. If you see the quote, say, USD/EUR 0.8821, it means that for USD 1 you can buy EUR 0.8821.
Currencies are usually traded in lots, from micro (1,000 units) to mini (10,000) to standard (100,000 units). Currencies of developed countries make up the most liquid and reliable market, while exotic currencies (stemming from developing countries) are harder to trade because of lower liquidity.
The History Class: Origins of Forex
Throughout history, all kinds of money invented by people were somehow convertible into one another, for the sake of trade, but the procedure was complex and unreliable for regular operations. Yet only after WWII that pushed the nations to cooperate closely, the forex market in its current sense emerged. It became possible through the establishment and following dismantling of the Bretton Woods system.
In 1944, under the Bretton Woods agreement, the U.S. dollar value was directly pegged to the price of gold (and it was possible to exchange USD for gold in banks), and other currencies became pegged to the U.S. dollar. Yes, it was that moment that made USD a measure of all things financial.
However, this first market was strictly regulated by governments, and trading currencies made no sense since exchange rates were held on the leash. It was in 1970, as the Bretton Woods system was dismantled, that currencies including USD became fiat money with the floating rates that depended on a multitude of economic and political factors. Then it was possible to make money by exchanging currencies regularly in large volumes.
How is money made, after all? Forex investors can:
- Benefit directly from changes in exchange rates
- Benefit from interest rate differential between two different currencies.
Big banks operate usually in the name of their customers in the market, but individual investors today also have access to these operations for moneymaking. Banks, hedge funds, billionaire-level investors, and multinational corporations ruled the world of the forex trade before the internet because they had lots of money to invest. Yet the web with its online forex brokers and leverage options opened the forex trading door to millions of small-scale traders on a par with big ones.
Strategies Above All: Which One To Choose For Trading
To make the full potential of the forex market work for your wallet, you need to learn how to trade forex using specific strategies. Pick the one that matches your temperament, level of patience, and emotional control. Then you’ll make the most of this opportunity.
- Position trading: it is a long-lasting strategy, since you hold your position quite long, for months or even years. It is less stressful than day trading, but it requires good knowledge of the global economy to predict what currencies will grow in price.
- Swing trading: it takes less time than position trading. With this strategy, a position is held for days or weeks, in times of major economic announcements or political events that can impact the exchange rates. Traders need to be skilled in technical analysis and in following major news.
- Day trading is the most known in wider circles. It is a short-term strategy, and it means opening and closing a position within the same day. Profits are made in hours or even minutes, and a trader needs to follow the charts carefully to predict the direction of price changes.
- Scalp trading: it is the most time-consuming strategy with the shortest positions. A position is held for mere minutes or even seconds, and gains from each trade are small. But at the end of the day, the balance looks nice, cumulatively. However, this strategy does not allow living through the wave of significant volatility, so trading is conducted when the market predictably booms most during the day. A trader needs to have the nerves of steel to open and close positions just in time (every second counts) and not to succumb to panic or FOMO.
Getting Things Going
Now that you know about strategies and the money you need to own to start trading, what’s next? The next is technicalities. You need to pick a reliable broker (a place where you will do the trading), open an account, choose the currencies wisely and learn from successful forex traders to keep calm during the market storms. We will explore it all in detail further on, so tune in.
Start Small: Open a Micro Forex Account
Let’s assume that you’ve chosen Justforex as your broker (a good decision, actually), and plan to open an account. What kinds of accounts are available to you? Yes, they are different, and the key difference is the amount of money (lot) you can trade.
- Micro account is for lots up to 1,000 currency units.
- Mini account is for lots up to 10,000 currency units.
- Standard account is for lots up to 100,000 currency units.
Mind that many brokers count leverage money against the total sum: you can have USD 100, use the leverage of 10:1, get USD 10 for every USD 1 you invest, and land at the micro account with a total of USD 1,000. We recommend that as a beginner, you open a micro account with the minimum necessary investment amount. Then you will have plenty of practice without risking tons of cash and will safely transition to a bigger account as your confidence grows.
Be Picky About What Currencies To Trade
As we explained, currencies have freely floating exchange rates that are influenced by a host of big and small reasons. The economic situation, some natural catastrophes, bad reports on employment or GDP, etc. all influence the price of a currency compared to other currencies. That’s why, before you dump all your money into any currency that seems to rise, you need to find out what caused this growth and if it’s not a small bounce-back after a big price downfall.
In other words, first, you need to learn fx trading from the viewpoint of the few currencies, explore their previous prices, their current value, and prognoses, and make decisions based on this research. You only begin to develop that famous gut feeling, and diligent learning and practicing are the best way to achieve it. Few currencies mean that you can dedicate more time to exploring their basics and the reasons that make them grow or fall. In this way, you will minimize unwise operations and the chances of losing your money. When you learn to understand and evaluate currencies in a small account, you will be ready to transition to bigger operations. It’s the best way to learn forex trading for you as an entry-level market player.
Keep Emotions at Bay
FOMO, panic, and jumping into the last bandwagon have destroyed the careers of many capable traders. Don’t succumb to private emotions or general craze in the market. You need to be guided by your research and trading strategy and plans. Your only reason for making trades should be the calculated potential of success. Trading should not feel like casino gambling. It’s the wrong approach, so rethink it.
As you start forex trading, another important thing is to absorb losses and exit the market if you see that your expectations do not match the real price moves. You may believe that the market acts “irrationally” and it’s a temporal aberration in the orderly state of things. Yet this temporary market aberration can last longer than you can stay solvent if we rephrase the words of J.M. Keynes.
If you persist in your attempt to outwait this irrationality of the market, you will most probably lose everything. That’s why acknowledging that your predictions were wrong this time and closing the trade is the best decision you can make. Please remember this rule all your forex journey though.
“You may believe that the market acts “irrationally” and it’s a temporal aberration in the orderly state of things. Yet this temporary market aberration can last longer than you can stay solvent, if we rephrase the words of J.M. Keynes. “
Getting Practical: Forex Trading Example
It seems we have covered the basics. But what will the first operation in the market look like? Where’s the practical tip on how to trade forex for beginners? Let’s consider a small operational example with the most popular pair, USD/EUR.
A trader learns from the analysis (or assumes from it) that EUR will appreciate (gain at price) against USD. A trader uses USD to buy EUR and purchases $5,000 worth of EUR at 1.2510. Then the price really grows, as predicted, say, to 1.2560. If the trader believes that’s the highest price for the day, he/she closes the position (sells EUR to get its price in USD) and gains a profit of USD 25 (5,000*0.0050).
If the prediction is false and the price of EUR falls, from 1.2510 to 1.2440, and the trader decides to close the position to avoid further troubles, the loss will make $35 (5,000*0.0070).
Here, you see several rules we discussed before at play. First, use analysis for prediction and check everything twice, second, start small, and finally, know when to exit the trades to absorb losses (if they happen).
Okay, Forex: Where’s The Money?
Now you’re almost there, at the threshold of your new financial reality. You’ve learned the rules and virtually conducted your first trade. So how to get into forex for real, with money-making and all?
As we mentioned at the beginning, small-scale investors gained access to forex trading due to the opportunities offered by the web. Hence, you need to find a trading online platform where you will conduct your operations. No, you do not need to go to the bank to do it, all you have to do is log in to the website, set up an account, and trade!
When you gain some experience and decide what strategies work best for you, you’ll be able to actually make substantial money.
Pick A Broker As You Pick Friends
A broker is a trading platform/software where you open an account. MT4/MT5 and Justforex are examples of brokers. With their help, you tap into the global forex market directly. Brokers provide instruments for analysis in form of data and charts, give access to leverages, sometimes really high, and don’t charge fees. Instead, costs are covered from spreads. Choose a broker carefully to ensure the safety of your funds and the efficiency of your trading operations.
Get Settled: Opening A Forex Trading Account
To open an account, you do not have to provide plenty of personal information. When you set up an account by choosing login and password, you may have to verify your age, name, and country under KYC policy. But that’s all.
So you verify an account, get credentials for access, upload funds (usually the minimum allowed), explore the tools and charts to get used to them, and only then make the first trade.
Remember we were talking about micro accounts? That’s where you should start. If you upload $100 and use margin 10:1, you’ll end up with $1,000, the required amount for a micro account.
Essential Forex Terminology to Learn
Now let’s learn forex trading terminology that will let you read all that gibberish posted in the financial media and actually understand what they say.
Account (forex): your personal space on the broker platform where you store money and make trades. Forex accounts differ in sizes of money lots they allow to buy and sell.
- Micro account: trading in up to 1,000 currency units.
- Mini account: trading in up to 10,000 currency units.
- Standard account: trading in up to 100,000 currency units.
Ask (or offer): the lowest price that you are willing to sell your currency at. It is always higher than the bid price.
Bid: the highest price you are willing to pay to buy the desired currency. Bid is usually lower than the ask price.
Contract for difference (CFD): this is a derivative instrument that allows buying and selling currencies without actually owning them. If there are signs that the currency pair price will grow, a trader will buy CFD for this pair, and vice versa, if the price is set to fall, a trader will sell the corresponding CFD to make a profit.
Leverage: leverage is money lent to a trader by the broker platform for making trades. Trading with leverage means making operations with borrowed money. It means higher profits, but also higher losses if things go south. The availability of leverage removes the problem of money from the question of how long it takes to learn forex trading because you can start with as little as USD 100. It all depends on your perseverance and attention only.
Margin: it is a sum of money that should remain intact in the trader’s account while he/she performs trading operations. This sum guarantees that a trader will be able to fulfill the financial obligations towards the platform even if the trading does not go as predicted. Margin goes in tandem with leverage used for trades.
Market, bearish: the market where prices uniformly decline in price. It spells economic problems or crises at large.
Market, bullish: the market where currency prices are all on the rise. It means generally positive trends in the world economies.
Pip: it is a price interest in points or percentage in points. It is the minimum increment of price movement, equal to 0.0001 of one currency unit. Depending on the lots permitted by your account, one pip can be $1 or $10.
Spread: it is a difference between the bid and ask prices. The spread is the source of actual profit a trader gets from the trading.
Meet The Dawn of Your Financial Success
All in all, we have covered all the best ways to learn forex trading and all the key points you need to know to start real trading. But before you actually open the door into financial wellbeing, you need to practice making a smooth entrance. That is, before betting big, open a demo account and practice until you feel secure among those weird words and columns of rapidly changing numbers. And remember that thorough technical and fundamental analysis is what makes you a successful trader who can make a living by trading. People who claim to be intuitive or insight traders are not traders at all and they leave the market being totally broke in a year or so.
We hope, the amount of information did not discourage you from pursuing this thrilling and workable sector of the financial world. After some learning and practice, you can become a professional trader. Of course, there are chances of losing, but there are also chances of winning. Just be sure to approach every decision rationally and calculate, rather than feel or believe in the market. There are plenty of tools that can help you learn how to trade forex successfully, and Justforex will be your trusted friend and partner in all your endeavors.
How is a type of forex account connected to currency lot size?
- Type of a forex account determines what size of currency lots you are allowed to trade.
- Lots of different currencies need to be traded in different accounts only.
- Some types of accounts offer leverage for currency lots and some don’t.
What are some popular trading strategies?
- Price action, trend, and technical analysis trading.
- Carry trade, copy trade, and intuitive strategies.
- Position, swing, and day trading.
What type of account should you pick to start your forex trading career?
- Standard account.
- Micro account.
- Customized account for extra-large trade volumes.
Are our emotional reactions and emotion-based steps helpful in forex trading?
- Emotions should inform your trade and impact your decisions.
- Emotions should be controlled and put in the back seat so as not to hinder the decision-making.
- FOMO and the market panic are the key signals that you should take as commands to action.