Do You Want to Become a More Knowledgeable Trader? Read our Quick and Easy Forex Trading Guide
Forex trading isn’t the easiest thing to master, but it is possible to participate with very little knowledge or experience. This is possibly why it has become such a popular form of investment all over the world. While it may be relatively easy to start Forex trading, there is one certain way to increase the chance of success. As with many other forms of investment, a little bit of knowledge can go a long way. There isn’t a Forex trading course you can enroll for at your local college, but there is a wealth of information available online. Some of the best Forex brokers provide educational material including videos, seminars and webinars, eBooks and training courses, completely free of charge. And we can help with your learning journey by providing a quick and easy Forex trading guide. We will also help you find the best Forex broker for your needs with a selection of Forex brokers reviews, along with some tips and tricks to make Forex trading much simpler and hopefully more profitable.
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$30 Non-Deposit Bonus | Review |
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$5000 | Review |
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50% | Review |
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40% | Review |
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$50 | Review |
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$100 | Review |
So let’s start your journey at the very beginning.
A quick introduction to Forex trading
Forex is just another way of referring to the foreign exchange market, which is where currencies from different countries are exchanged by a variety of people and businesses. Unlike the stock market, there is no central place where these exchanges take place. Instead Forex trading takes place over the counter (OTC) via a range of computer networks between traders who could be located anywhere in the world. The average daily turnover rates in the Forex market amount to more than $4 trillion which makes it by far the largest financial market and it has been rapidly expanding in size and popularity for a number of years.
You may be considering entering the market but did you realize you may already have done so and not even realized it? When was the last time you took a vacation? Did you travel to another country? It’s very likely that your normal day to day currency won’t have been acceptable at your destination which means you would have changed it for the local currency before you travelled. This is one way in which ordinary people participate in foreign currency trading without even knowing it. Another way is when you purchase goods or services from another country. Let’s give you an example. Say you reside in the UK and decide to buy a selection of Italian wines from your local supermarket. You will pay for your purchase in British pounds but the supermarket may well have bought their supplies using the Euro. This is a very simplified and basic form of Forex trading.
Modern business also relies heavily on the exchange of currencies and is another contributing factor in its popularity, and why it has become one of the largest and most liquid financial markets in the world. There is a huge potential for individual traders to make money by trading on the FX market, but the more you can learn the better placed you will be. And another factor that will help your success will be to find a top Forex broker to work with. FX brokers come in all shapes and sizes and offer varying degrees of service. We’ll be reviewing some of the best Forex brokers in the world today in order to help you with the decision. We’ll also help you weed out the legitimate Forex brokers from those who are just a scam. So keep reading and make sure you visit some of our other pages because we have so much left to share.
Why so many people choose Forex trading as a form of investment
Ask any number of forex traders what it is that attracted them to trading foreign currencies and you’ll get a range of different answers. However, there will be one common thread through all of them. And that will be the chance to make money. In today’s modern world, where many people are having to tighten their purse strings, finding a way to make a little more cash is always going to be appealing. But there are a number of other qualities that have led to its popularity.
- It’s really rather enjoyable – Picking a winner can be very exciting, especially if you’ve devised your own trading strategy or spent time considering various signals. It’s also very interesting to keep in touch with what is happening in the world in general, but more particularly the financial and economical elements.
- Convenience – Trading hours are very convenient as the Forex market is open 24 hours a day, 5 days a week. The top Forex brokers have offices all over the world, and because trading takes place online, as long as you have a reliable internet connection you can take part anywhere.
- Diversification – The wisest way of investing is to diversify and not put all your eggs in one basket. Top rated Forex brokers give their investors ample opportunity to invest in different sectors and asset classes, as well as enable them to trade a number of different currencies.
- Opening a trading account is quick and easy – Generally, it only takes a few minutes to open a trading account and doesn’t mean you have to risk thousands of dollars. You can even try trading for free by opening a demo account and trading with virtual funds. There are also a number of Forex bonuses you can take advantage of to increase the value of your trading account.
- A good range of top rated Forex brokers to choose from – Finding the right partner to assist with your trades is vital and there are plenty of legitimate Forex brokers to choose from. And we’re here to help you choose one with our selection of trusted Forex brokers reviews.
- Low cost form of investment – FX brokers have to make money for themselves, otherwise there would be no point in offering their services. However, the charges and fees levied by these brokers are really quite reasonable.
- Various levels of commitment – When you start Forex trading you can decide how much time you wish to devote to it as there is no need to spend your entire life following the markets. There are even ways you can hand over most of the decision making to a third party if you choose to take advantage of auto-trading robots.
- You don’t need to be have a degree or be an expert – Forex trading is a form of investment that requires very little expert knowledge. Many experts and analysts will agree it is perfectly feasible for a lay person to trade with the help of various ready-made strategies, mathematical patterns and probabilities.
Anyone considering Forex trading, however, should be prepared and be more than comfortable with the risk involved. There will be good trading days and, as if often the case, you may also suffer a run of bad luck. Any form of investment involves a certain level of risk and you have to be comfortable with taking a few knocks on the chin. That being said, you are already off to a great start and it is all set to continue. Time to look at the subject of Forex brokers, as finding the best one will play a vital part in your success.
Tips for finding the best Forex broker
We’ve already mentioned that many people start trading because they want to make money. Well, that’s all well and good but what happens when you want to withdraw some of those profits? While doing our research we spent a considerable amount of time reading various customer reviews, and there seems to be a common complaint, especially for beginners, that centers around withdrawals. Therefore, we feel it’s only fair to say you should be looking for an FX broker that promises easy withdrawals. We always consider this aspect when writing our reviews and will make sure we mention whether you can expect any problems. As an aside to this point we should also point out that there seems to be a common thread when talking about problems relating to withdrawals. More often than not, the trader has failed to read and understand the Forex brokers terms and conditions. They vary considerably from broker to broker, and there are usually certain conditions attached to a Forex bonus. Failing to understand exactly what is required means problems with making a withdrawal, and sometimes it could be that the withdrawal is not allowed and a trading account could even be closed completely. Once you’ve taken this factor into account there are a number of others you should be looking at.
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$30 Non-Deposit Bonus | Review |
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$5000 | Review |
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50% | Review |
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40% | Review |
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$50 | Review |
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$100 | Review |
Commission and spreads
How much Forex trading is going to cost you is obviously a big consideration, as any fees or charges you have to pay to the broker are going to eat away at any profits you make. A number of the best Forex brokers make their money by way of the spread, which is quite simply the difference between the buying and selling price of a currency. A broker who should feature at the top of your list is one whose spreads are competitive. As well as spreads there are also brokers who charge commissions and fees. And if you’re planning to trade in large volumes you’re going to be better off picking one who does this, as it will work out more cost effective in the long run.
Speed and reliability of execution
The world of Forex trading is pretty fast paced, so you want to pick a Forex broker who can keep up with all the changes and enable you to react quickly when you decide to make a trade. You also want to be sure the broker’s server won’t go down right in the middle of a vital transaction and leave you out of pocket because you missed the trade.
Quality of customer service
Even if you choose one of the best Forex brokers in the world it is highly likely that at some point you need a little help or guidance. You may be confused about something and need clarification, or you might want the terms and conditions relating to a Forex bonus explained in layman’s terms, or there could be a technical problem with the trading platform. Any of these issues and more can happen at any time of the night or day during the trading week so it will be of benefit if there is someone you can speak with directly. We assess the level of customer service for all the Forex brokers we review and share our findings, good and bad. You might also spend some time looking at various Forex broker comparison sites and reading plenty of customer reviews.
Range of currency pairs and availability of other tradeable assets
Every broker will offer their own selection of currency pairs, but generally, most will offer the majors. These are EUR/USD (Fiber), USD/JPY (Gopher), GBP/USD, AUD/USD (Aussie), USD/CHF, NZD/USD (Kiwi or The Bird) and USD/CAD (Loonie and The Funds). When you first start out, it is often better to stick with the majors as more often than not the spreads and commissions are cheaper. Once you’re a little more experienced it’ll be time to look for more variety. Not just in the range of currency pairs but by considering other tradeable assets such as indices, stocks, CFDs, commodities, bitcoin and binary options.
A reliable trading platform is vital
MetaTrader 4 is by far the most popular option. Not just for brokers but traders too. The top rated Forex brokers may also offer their own customized trading platform for the benefit of their customers. The various trading platforms can either be downloaded or used directly from a browser, and most are mobile friendly which all together allows you to trade wherever you might be. The quality and availability of various platforms is discussed as part of all our forex brokers reviews. What will be of most interest is whether the platform is user-friendly, smooth running and easy to master.
Before we go any further it’s going to be a good idea to introduce you to some of the terms you’re going to come across when considering which broker to choose. Understanding what all the jargon means will put you in a better position to make the right decision.
A glossary of Forex trading jargon and terminology
When you first start comparing the various Forex broker sites and delving into what the different brokers offer, it will be far easier to make informed comparisons if you have at least a basic understanding of all the jargon. It’ll no longer sound like gobbledygook once you’ve read and digested the following glossary.
- Exchange rate – When a certain currency is expressed in terms of another this is known as the exchange rate. Say the rate for the EUR/USD currency pair is 1.13. This means the Euro is worth US$1.13.
- Cross rate – If a currency quotes doesn’t involve the USD it is generally known as a cross rate. However, just to confuse things, it can also refer to an exchange rate that doesn’t feature the official currency of the country where the exchange rate is being given.
- Pip – This refers to the smallest movement it is possible for a currency to make. For the majority of currencies, quotes are given to four decimal places, so in the case of EUR/USD 1 pip is equal to 0.0001. However, there are a few currencies that are an exception such as JPY. In this case quotes are given to 2 decimal places making 1 pip equal to 0.01.
- Margin – There is always a minimum amount required in order to open or maintain a position. There are two types, free and used margin. Free margin refers to the amount that should be available in order to open a trade. While used margin is what is already being used in order to keep a position open. It can happen that a trading account falls below the margin, in which case the trader will get a margin call. This is effectively telling them that their account needs topping up with more funds, otherwise the open position will be closed. It is something a trader should always be aware of because there are brokers that will automatically close a trade if a trading account falls below the minimum margin level. Margin levels vary from broker to broker but can be as much as 50% of the margin that was required in the first place to open the trade.
- Leverage – Leverage is another factor that can vary greatly from broker to broker. It will also depend on the type of trading account, as well as the instruments being traded. Leverage gives traders the opportunity to gear their account into a position much greater than the account margin. While leverage of large amounts may be very appealing, as it can substantially increase profits, it should be remembered that it can also lead to substantial losses.
- Spread – The difference between the selling price and the buying price is commonly known as the spread, and it is one of the ways a broker makes its money. A quote for a currency pair is normally expressed as two sets of numbers, for example 1.4100/02. The spread will be the difference between 1.4100 and 1.4102 which is 2 pips.
- Bid price – This refers to the price at which a broker or the market will sell a currency pair to a trader. In other words, it is the price a trader can sell the base currency to the broker.
- Ask price – This refers to the price at which a broker or the market will buy a currency pair from a trader. In other words, it is the price a trader can buy the base currency from the broker.
- Base currency – This is the first currency that forms a currency pair. In EUR/USD, for example, the base currency is the Euro. The Euro always has first precedence as a base currency and the established priority ranking for major currencies is as follows: Euro, Pound sterling, Australian dollar, New Zealand dollar, US dollar, Canadian dollar, Swiss franc, Japanese yen.
- Quote currency – This is always the second currency in a pair and is sometimes referred to as the counter currency.
- Lots – Positions are always quoted as ‘lots’. They vary in size and can be either standard, mini, micro or nano lots. A standard lot is typically 100,000 units of the base currency.
- Going long and going short – When a trader opens a position, because they think the market is going to rise, this is known as entering a long position. If, on the other hand, they believe the market is going to fall it is known as entering a short sell position.
- Stop loss – This refers to something a trader can do in order to keep losses to a minimum. They can choose to open a stop loss order which will protect then if the trade goes wrong.
With your Forex dictionary firmly lodged in your mind it’s time for a brief history lesson. Some of you won’t be interested in how forex trading began, but there are going to be others who will want to know the origins of this form of trading. We’re not going to go into great depth, as we have to admit it can get a little boring. But an understanding of how it all began will be of benefit.
The history of the foreign exchange market from the 1800s to the present day
People have been trading currencies since ancient times, but it is only fairly recently in its history that there have been some significant events that led to the way in which the foreign exchange market operates today. One of these events took place in 1875 when the gold standard monetary system was first introduced. Up until then a country’s currency had always be unstable. The gold standard meant that countries could attach a specific amount of their currency to an ounce of gold, which was a far more standardized means of currency exchange.
The onset of World War I led to the breakdown of the gold standard because many of the major European powers were unable to exchange gold for the large amounts of currency that was being printed. They simply didn’t have enough in their reserves. When WWI ended and before the beginning of WWII the gold standard was reintroduced but was dropped once again when the Second World War started. It was never used again, but that doesn’t mean the value of gold diminished. It is still used as the ultimate form of payment today.
Another significant event in the history of Forex trading came with the introduction of the Bretton Woods System. In 1944, a number of significant countries held a meeting in Bretton Woods, New Hampshire, and the main item on the agenda was to devise a system that contained the rules for financial and commercial relations between the US, Canada, Western Europe, Australia and Japan. The IMF (International Monetary Fund) and IBRD (International Bank for Reconstruction and Development) were also formed and today these bodies make up part of the World Bank Group. The system replaced gold with the US dollar as the reserve currency, meaning it would be the only currency backed by gold in the future. The US decided it didn’t want to use this system in 1971, which eventually led to the use of floating foreign currency exchange rates being used almost everywhere in the world. Foreign currency exchange, as we know it today, has its roots in 1976, but electronic trading didn’t take place until the middle of the 1990s.
History lesson over, and it’s time to move our attention back to Forex brokers and introduce the various types you can choose from.
There are various types of FX broker to choose from
There are a number of different brokers to choose from, and it really depends on your needs as to which one will be right for you. There are dealing desk (DD) brokers, and no dealing desk brokers (NDD), which are further divided into STP and ECN brokers. We’ll explain the difference between them all, and it will help you decide which is the right one for you.
Dealing desk brokers
This type of broker is also known as a market maker and offers direct access for traders to the interbank market. A dealing desk is used in order for the broker to act as a counterparty to the client’s trade. In other words, the DD broker takes the opposite side to every trade a client makes. When a market maker accepts bid and ask quotes they then have to find a counterparty to the trade from among the other clients. If that isn’t possible it is passed on to a liquidity provider, and on very rare occasions they will act as the counterparty themselves. This system has led to a number of traders becoming concerned that this could be considered a conflict of interest, however, it is very rare this happens. Traders are offered fixed spreads that can be either above or below real market prices.
No dealing desk brokers
As you might realize, this particular group of brokers has no dealing desk and includes ECN and STP brokers, or a combination of the two. When an NDD broker accepts an order it is passed directly to liquidity providers for execution, rather than passing through a dealing desk first. Lower spreads and faster executions are the benefits of an NDD broker and they earn their money by charging a commission or by marking up the spread.
ECN brokers
ECN Forex brokers are a very popular choice because they bring a number of benefits. We’ll be looking at them in more detail on another page, so let’s start by giving you a quick rundown on how an ECN broker works. When a trader makes an order it is received by the broker and passed straight away to the interbank market for execution. But it also makes the order available for their other clients should they wish to be party to the transaction. ECN trading is a very transparent form of trading as it allows all parties to see the orders and to compete against each other. An ECN broker always offers variable spreads and they are generally very low.
STP brokers
STP stands for Straight Through Processing and this type of broker enables transactions to be computerized and processed instantly on the interbank market, without any intervention.
Now we’ve introduced the different types of Forex broker let’s at one of the first decisions you’ll have to make once you’ve chosen the best Forex broker to work with.
You’ve chosen a broker and now it’s time to open a trading account
It is usual for top rated Forex brokers to offer clients a range of different accounts. Each will have its own set of margin requirements, leverage, selection of tradeable instruments, and deposit requirements. There may also be a number of other benefits that differ between accounts. However, basically, trading accounts tend to fall into one of three groups.
Mini trading account
This is possibly the best choice for a trader who is new to the market because deposit requirements are generally low. The exact amount will vary between brokers but can be as low as $5. A mini account also allows traders to make trades in much smaller lots, usually equivalent to $10,000. Mini accounts are often used by brokerage firms to attract clients who are new to Forex trading, those who are a little unsure about trading full lots, or those with limited capital. Mini accounts have a lower risk level which means traders get to try out new strategies without having to worry about losing lots of money. Trading in smaller lots also allows for greater flexibility. The downside of a mini account is that rewards are also going to be low.
Some Forex brokers offer accounts with even smaller lot sizes and these are known as Micro accounts.
Standard trading account
The minimum deposit for this type of account is higher than a mini account, and is the most common type of account. With a standard account there is access to standard lots of currency, which are usually worth $100,000. But this doesn’t mean you have to have $100,000 in capital, because there are the rules of margin and leverage to take advantage of. Say, for example, the leverage is 100:1. You can trade a standard lot with as little as $1,000. A standard account holder will be entitled to more services and better perks than a mini or micro account holder. The downside of opening a standard account is the level of deposit requirement, sometimes as much as $5,000 or $10,000. And of course, because you are trading in larger amounts the risk is also higher.
Managed trading account
With a managed trading account the capital belongs to the trader, but the important buy and sell decisions are made by a professional. The trader sets the goals and an account manager makes the decisions in order to achieve the required goals. There are two types of managed trading account.
- Pooled funds – An investor’s capital is placed into a mutual fund and profits are shared among the investors. Accounts are divided according to the risk tolerance of investors. A trader might be looking for a steady income, in which case they will pick a pooled account with a lower level of risk. If a trader wants higher rewards they can choose to invest in a pooled fund that promises a higher risk/reward level.
- Individual accounts – Brokers handle this type of account individually and make decisions based on a single investor rather than a pool.
The advantage of choosing this type of account is obvious. Letting a professional make all the decisions is a great option, particularly if you haven’t got the time to devote to watching the markets. The disadvantage of this type of account is the high deposit requirement and the fact that a broker will usually charge commission as well as an account management fee.
Whichever type of account you are considering, our advice is to always start by opening a demo account. Most brokers offer one, so it makes sense to take advantage of the opportunity to take a test drive. There are so many different options available in the Forex world it makes sense for you to be 100% satisfied before risking any real money.
Are you sure you’ve got what it takes to be a Forex trader?
The world of Forex trading is not paved with gold, despite what you might read or hear from other traders. People choose to participate for a number of different reasons. For some it is a way to unwind and actually fun and enjoyable. Others relish the challenge of trying to beat the market. Whatever the reason it’s important for a new trader to understand that making lots of money by trading foreign currencies isn’t the easiest form of investment. Don’t believe what some online trading sites tell you when they promise high profits with very little effort. There is no way your trading decisions are going to be 100% successful, losing is all part and parcel of this form of investment. An important part of Forex trading is accepting these losses but also trying to limit them as much as possible. One way to do this is by always trading with a stop-loss. There are lots of other things you can do to increase your chances of success.
Want to be a successful Forex trader? Keeping reading for a selection of helpful tips
We don’t want to end on a low note, so let’s finish up by sharing some tips on how to make your Forex trading more successful.
- Consider your ultimate goal and recognize your needs. Trading Forex is a journey and there is no point starting that journey if you haven’t considered the ultimate destination, or how you are going to get there. There are a number of different paths to take and each one will have its own level of risk and require a certain approach and attitude. Are you going to be able to sleep at night if you’ve left positions open? Day trading might be the right choice of trading style if open positions are going to give you nightmares. Picking the right trading style is important, or you will find this form of investment very stressful, and in the long term unsuccessful.
- Choose a Forex broker that is right for you. Choosing the right Forex broker is almost as important to success as picking the right currency pairs. It can be rather confusing picking from the large number of trusted Forex brokers available. But it shouldn’t be a problem if you’ve got the time to read a good selection of reviews. Make sure you take the time to read our selection because we’ll cover all the relevant points such as trading platforms, leverage, spreads, customer service, education and payments. We have one piece of advice that will be mentioned time and time again and that’s to make sure you read the small print. As the terms and conditions of individual brokers are often what trip traders up.
- Carefully consider your risk/reward levels. Manage your risk carefully, and don’t make the mistake of funding your account with money you would normally use for day to day expenses. You’re not going to make winning trades 100% of the time, and have to be comfortable with the inevitable losses. While at the same time doing everything you can to keep them to a minimum. High levels of leverage may seem very appealing. And while they have the potential of bringing high profits they can equally lead to big losses. It’s advisable to only choose leverage that is less than 2% of your total account funds.
- Decide on a trading system and stick with it. Deciding which trades to make isn’t random and involves making use of different kinds of information. You might decide to use technical or fundamental analysis or a combination of the two. You also have the choice of letting someone else make the decisions by taking advantage of an Expert Advisor. Whichever methodology you use it is vital to stick with the decisions you make and endeavor to be consistent. However, the Forex market is ever changing so you also have to be prepared to adapt to those changes and be as flexible as possible.
- When the markets are closed for the weekend do some research. The weekend is a good time to reflect on the previous trading week and prepare for the trading week to come. When you aren’t worried about actually making trades is the perfect time to study weekly charts and try and spot any patterns. It’s also a good time to catch up with the news, especially those that have the potential to influence upcoming trades. Don’t be disappointed if there is nothing to attract your attention because there is always going to be something just round the corner. Two vital qualities for a Forex trader are discipline and patience.
- Keep consistent records of your trades. Keeping records is an important skill to learn and to practise it on a regular basis. If it was a particular chart that helped you to make a trading decision then print it out and make notes on how it helped with that decision. Make comments and mark the entry and exit points and file it for future reference. Spend some time considering you emotions and make a note of how you felt as this will help in your personal analysis.
There are a number of common mistakes beginners make when they start trading. The biggest one is not being disciplined. Trading Forex can be a bit of an emotional rollercoaster and it’s vital to learn to ride the waves and not get carried away. But to also pick yourself up and keep going when everything seems to be going wrong. Having a well constructed strategy will help to maintain discipline and keep you focused on your ultimate goal. Being successful is not a question of trial and error. In fact, it is really an inefficient strategy to adopt. There is so much information available online that it really isn’t necessary either. Forex trading is a worldwide community and there are plenty of successful traders and trusted Forex brokers who are happy to share what they know. But, as with any kind of investment, there are also a number of sharks. With our help you’ll be able to steer clear of shark infested waters.