How to play in the Forex market from scratch – step-by-step instructions for successful trading on the exchange for beginners18 min read
What Forex game strategies are suitable for novice traders? How best to play for beginners, wishing to earn their first money from trading on the Forex exchange from scratch?
Someone claims, what makes millions on it, and the rest are trying to understand, What are the secrets of making money on Forex and what steps you need to consistently take, to succeed here.
All of this will be discussed today. Having studied this material, you will understand, which direction is «dig», if you decide to connect your activities with financial markets.
Forex Market: why is he so attractive and how much can you earn here
If you are not familiar with the concept «Forex», then in a nutshell, what it is.
Forex Market – it is an over-the-counter interbank currency exchange market, that is, he does not have a single center (sites), where are the players, or as they are called – traders, make transactions on the sale of currencies.
Unlike commodity and stock exchanges, Forex appeared later, in 1971, after the unlinking of the dollar to gold. Since then, exchange rates have become «floating» and it became possible to exchange one currency for another.
for instance, you can now freely buy dollars for euros, francs exchange for pounds or yens.
When a Forex Trade Occurs, it’s customary to talk about such a thing as «currency pair».
That is, on the one hand, the currency acts, who want to buy, and on the other – that, for which they buy the first. This situation with the free conversion of one currency into another gave rise to the idea of earning on the difference in the exchange rates of these currencies.
The concept of leverage or how to turn 100$ in one day at 1000$
Suppose, you have everything 100 dollars. This is a very small amount and earnings from it will be small. but, when trading, your broker gives you the opportunity to use leverage.
Leverage – this is additional capital, which the broker gives you, so that the volume of your transaction is many times larger, than the available initial amount.
Typically, leverage is 1 to 100 (although you can choose another size).
Take the same numbers, as in the first case.
You have 100 dollars, but thanks to the broker you get «co-financing» your transaction in a 100-fold size and now you are making a transaction in volume 10 000 dollars.
You can earn so much in one transaction, how many people get per month. But here you must not forget about the risks.
Leverage also quickly contributes to capital loss in illiterate trading.
Thus, you, Dear friend, by simple mathematical calculations you can predict your income, having everything 100 dollars in your pocket for playing forex.
It is the possibility of obtaining such fabulous profits on invested capital that attracts the foreign exchange market. Every day, thousands of new traders around the world come here hoping to get rich quick.
Proven, that exchange trading is one of the most profitable types of legitimate activities.
And if you figure it out, you can not only make good money, using your own funds, but also take substantial sums into management, trading with much lower risks, and getting your percentage of profit in the management process.
All this once again shows, that on Forex you can earn thousands of percent per annum.
Next, consider the pros and cons of the foreign exchange market.
Advantages and disadvantages of Forex trading
Unfortunately or fortunately, but the truth is, what forex – it is not a golden grail or «magic button», allowing you to get rich in a couple of days or months.
This is really hard work, primarily psychologically, because the change in the stock chart is often accompanied by great stress, especially for beginners, when they see, how online price fluctuations change the size of their trading account.
That, who tried to trade, knows, what can burn now «+100$», and in a couple of minutes «— 250$» and this, to put it mildly, introduces into an emotional stupor inexperienced traders.
Under the influence of their own emotions, people begin to make spontaneous actions, including at the wrong time open and close transactions, resulting in large losses.
So what exactly are the advantages of Forex over other types of earnings and business in general??
Let’s list them.
Benefits (+) forex trading
Among the main advantages are the following points:
- Opportunity to earn quickly and a lot. Using your funds and leverage, as well as trading simultaneously with several currency pairs, you can increase your capital several times even in a day. Although chasing such profitability is meaningless in view of the huge risks, but technically possible. Unlike banks and classic business, where the yield is 10-50% per annum is considered quite high, on Forex, you can literally become a millionaire in a year, having just a couple thousand dollars.
- Start with minimal investment (usually from 100$). Practice and understand, how much is «your», you can on cent accounts. Some brokers provide the ability to open a trading account of a few dollars. That is, you can start in a couple of minutes after reading this article. But in order to really feel at least some tangible money and understand, how do you feel psychologically in the trading process, better to start no less, than with 100 dollars.
- Mobility. Since all your activities are carried out via the Internet, you only need a computer, open trading account and access to a worldwide network. You can carry out transactions from anywhere in the world. Someone prefers to work on Forex from home, and someone specially rents an office in order, so that nothing distracts him. Anyway, your business is always with you and no one will take it away. You have no bosses and subordinates, which means, that the success of your business depends entirely on you.
- Kudos to the profession of a trader. Many films were shot on the topic of trading. Often ignorant people attribute mystical qualities to successful stock market players. Learning the story of George Soros and other financial movers, people used to identify this activity with the magic of money, with something unknown, ingenious and accessible only to the elite. But this position is greatly exaggerated. Traders – these are the same people, they just professionally, which brings a good income and is an integral part of the development of the market and information technology.
- The ability to trade at any time of the day. Since the Forex market is working around the clock, you can trade day and night, which is very convenient. In this case, you are not limited by time zone. This mode of operation of the foreign exchange market is possible, as traders from all over the world work here simultaneously, and all trading time is broken into sessions, there are 4 of them.
There is only a weekend here. It’s saturday and sunday.
disadvantages (-) forex trading
As mentioned above, this way of making money is not without drawbacks.
Among them are the following:
- High risk of losing money. It would be logical to assume, that excess profits are associated with increased financial risks in the foreign exchange market. for instance, the bank is the most conservative tool for investing money, but the percentage there rarely exceeds 10% per annum. On Forex, you can lose all trading capital for a couple of unsuccessful transactions. Therefore, it is necessary to observe the rules of risk management when trading, which will be discussed below.
- Strong emotional stress. When you see in real time, how your account balance changes and this happens systematically, then often «shake» leads to nervous diseases, and in case of loss of a substantial amount of money to a bad mood and even in some cases to depression. Keep that in mind, if you know, that your nerves are not as strong as we would like. From this we can conclude, what it is worth to refrain from trading on Forex to people with cardiovascular and neurological diseases, pregnant women.
- Possible occurrence «gambling addiction». Some people are so addicted to this «the game», that they literally develop a psychological dependence on working at Forex. And does not matter, while they lose money or earn, the trading process itself is so fascinating, that they stop noticing real life. It is especially dangerous to try to recoup after big losses. Indeed, in this case, the trader does not control his emotions and can spend the last money here, even if they are borrowed. Be careful not to turn this tool into a tape measure.
From the table below, it is seen, which, according to some basic criteria, Forex has a number of advantages over offline business.
Comparison of Forex earnings with classic business
|№||Comparison criterion||Forex Earnings||Classic business|
|1||Investment size||Minimum — from 100$||Minimum — from 10 000 dollars|
|4||Financial risk||Very high||Moderate|
|5||Return on invested funds (% per annum)||More than 150% (at high risk)||More than 50% (at high risk)|
Fear and greed – main enemies of successful stock trading
Continuing the topic of the psychology of exchange trading, one cannot fail to mention two very dangerous traps for the trader – it is fear and greed.
Fear – this is a natural human reaction, potential hazard.
On Forex, fear most often manifests itself in situations, when a trader logically understands, what exactly is here, at this moment you need to enter into a deal, but emotionally afraid to do it. As a result, he misses a profitable opportunity and does not receive potential profit.
Greed – this is the same common psychological condition, when a person overestimates his strength and seeks at all costs, in spite of the danger, get as much as possible.
In stock trading, greed is manifested in excessive self-confidence, neglecting obvious dangers of losing an existing profit or not closing a losing position.
The result of greed at a certain stage may be hope. This is another condition, when a trader is sitting and «prays», so that his profit grows or the deal turns in the right direction, if an unreasonable minus burns in the position opened by him.
As mentioned above, fear and greed – this is just our psychological state. But psychology, sometimes plays a trick on us. So that psychological aspects do not prevent us from working productively on the exchange, there is one main rule:
Always work on the system!
That is, open deals, when you have clear logical reasons for this and close them also, when your trading system received a clear signal.
Do not rely on chance. Indeed, this is how most traders lose their money.
Before, how to enter a position, you must have a clear action plan, how and under what circumstances will you leave it. This system is called trading strategy.
Following these simple guidelines, you will greatly increase your chances of success.
How to play the Forex market from scratch — step-by-step instructions for successful trading
We pass from the theoretical part to the practical. This step-by-step trading technology will help novice traders earn the first money in a minimum of time and become professional Forex professionals in the future.
Step 1. Mastering the theory of exchange trading
It makes no sense to practice right away, not knowing the basics, if you are going to do something new. And the foreign exchange market is no exception.
Start reading books on the subject of exchanges, Forex trading, fundamental and technical analysis.
To begin, we recommend reading the following classic books on the topic, they will be especially relevant for beginners:
- Nassim Taleb – «Black Swan. Under the sign of unpredictability»;
- Thomas Oberlechner — «Forex Market Psychology»;
- George Soros — «Alchemy of Finance»;
- Mark Douglas — «Disciplined trader».
Also in YouTube and not only, you can find a wealth of information about, how to play forex, as well as interviews with analysts and practitioners of the foreign exchange market.
Step 2. Choosing a Forex Broker
After that, how do you understand theory, you will need to go to the first purely practical step – Forex broker choice.
Broker – this is a company, which allows you to carry out trading operations in the market.
All transactions you can conduct on Forex only through a broker, as individuals cannot independently carry out trade operations here. A reliable brokerage firm is required to have licenses to carry out this type of activity.
How to choose a Forex broker – 4 main criteria
When choosing a Forex broker, I recommend that you adhere to the following criteria:
- Reliability. Agree, that all other criteria are meaningless, if a brokerage company just hides with your money, finding yourself fraudulent, or not pay you honestly earned amount. The reliability of the broker can be checked by the availability of appropriate licenses, market life, customer reviews and service levels.
- Authority. Authority – this is an indirect confirmation of reliability. This parameter can be determined by the presence of a convenient and high-quality broker website, his participation in thematic exhibitions, volume of advertising like on the Internet, so offline.
- Commission amount (spread). From each transaction, which you commit, broker as a middleman holds a small commission, also called spread. With active trading, the size of this commission may result in a substantial amount, so this criterion when choosing a broker should also be considered.
- Convenience of the trading platform. Usually, most brokers provide you with their trading platform – this is a software interface, which allows you to make transactions and conduct online market analysis. Typically, the trading terminal is MetaTrader version 4 and 5. Some brokers use their own software development, and these trading terminals have their advantages and disadvantages. Just «Metatrader» considered a classic of the genre and quite convenient for foreign exchange transactions.
Step 3. We are training on a demo account
To understand, how the forex market works, practice and not risk real money, we recommend you open a demo account. Its functionality is no different from the present.
It is on a demo account that you can develop your own trading strategy, master the functionality of the trading platform and better understand yourself and your psychological characteristics.
You can open a demo account in a couple of mouse clicks.
In the future, you simply put real money into your trading account and start real trading.
Step 4. Hone your trading strategy
In the previous paragraph, we already wrote, that one of the main goals of opening a demo account is to develop your own trading strategy.
Trading strategy – this is a set of rules, by which you will open and close transactions, based on the criteria specified in it.
To develop a trading strategy, it is important to determine, at what time intervals will you trade.
The choice of further rules of risk management and your trading activity depends on this.
Some traders prefer to make dozens of transactions per day, and others vice versa – keep a position open for weeks and more than one approach is neither better nor worse than another.
so, all your trading by time spent in the transaction can be divided into 3 types:
- Short term trading (scalping). This type of trading is also called day trading (day trading). This style of operations involves, that you catch insignificant price fluctuations within a day and due to a large number of transactions you get a solid profit. The disadvantage of this style – high involvement in the trading process and a small amount of profit per trade.
- Medium-term trading. Usually holding an open position occurs here for several days, sometimes it can take a couple of weeks. The trader in the process analyzes the charts and the general economic background in some detail. This opens 2-3 transactions, which are monitored and adjusted daily.
- Long term trading. Assumes, that the transaction remains open from several weeks to several months. For long-term trading, it is necessary to take into account the direction of the global trend and have a solid size of a trading account, since price fluctuations can be very significant over long periods of time.
Continuing the theme of trading strategy.
Trading strategy can be based both on technical analysis, so on fundamental. Sometimes it is possible to combine these two types of analysis.
- Technical analysis. It involves the study of a price chart, figures and levels that it forms;
- Fundamental analysis. Takes into account the general economic situation in the world, news background and situation in a specific country, which currency do you operate.
When did you decide on your trading strategy, honed her and understood, that it makes a profit on an interval of at least, than 1 month (a shorter period gives large errors), can go to the next step.
Step 5. We open a real account
Trading on a live account with your money — this is the most significant and exciting event for many novice traders.
Work with real money involves a strong influence of the psychological factor, so do not be surprised, what is your strategy, working well on a demo account, crashes when working in real life.
And it seems that nothing has changed: market, volatility* currency pair, stop order size*. But at the same time, your trade leaves much to be desired. This happens with almost all beginners. therefore, don’t worry.
Volatility – this is an important financial indicator, which displays price volatility per unit time. On the price chart, it visually looks like the amplitude of the price (her deviations).
Stop orders – these are applications for the purchase or sale of currency, which are triggered automatically when the price reaches a predetermined level. Stop orders are placed by the trader in advance and are usually part of his trading strategy.
for instance, order «stop-loss» means automatic loss fixing, if your deal goes negative, a «take-profit» involves taking profits at a certain level, to avoid a price reversal, when your position burns in the black.
Real money trading, moreover, do not try to get rich quickly and show the market «who is the guru».
Do everything gradually and learn from your mistakes, and they will definitely be.
Step 6. Learning to trade without big losses
You have opened a real account and are ready to rush into battle or as they say «in the pool with his head»?!
Then the main postulate for you in this situation is:
It means, that so far you have no experience, you must learn, lose as little as possible, since according to statistics 90% first-time traders for the first week completely destroy their trading account and forever leave the market full of disappointments.
You do not want to become one of them?! Then do not rush.
The main thing here — observe two rules:
- Following your strategy;
- Compliance with risk management principles.
About risks and about, how to minimize them will be discussed later in the section of the article about risk management.
Step 7. We leave in a stable profit
If you have successfully broken the breakeven phase, tested our strategy and developed psychological stability in the process of working on Forex, it’s time to move on to, why did you actually come here – Earn Money.
Since you can’t only make profitable trades and must understand, that losses are inevitable, the meaning of earnings comes down to, to your total income for the period was more, than yours total losses during the same time.
You may have even more losing trades, than profitable, but, the amount of profit should ultimately be greater.
for instance, you committed 30 deals. Do you have one of them? only 10 profitable, and the rest 20 — unprofitable.
But with each successful transaction you earned on average 100$, i.e. total 1000$ for 10 transactions, and in each unprofitable they lost on average 15$, i.e, your total losses amounted to 300$. Thus, your profit was 700$.
Let some more of your profit be given to the broker as a commission (spread), total, your net profit will be, suppose, 685$.
Understanding this principle, you will be calm even if the price is now against you.
Risk management: what is it or why do most newbies lose money
We came up in an important block when working on exchanges – money risk management or as it is often called «money management», which literally translates as money management.
This is a set of fundamental rules, as to, how to distribute trading capital within transactions and what should be done, to avoid unplanned losses, as well as how to insure the existing profit from losses.
3 important rules of risk management (money management):
- Rule 1. Do not keep in open transactions more than 50% capital. It means, that the aggregate of capital, invested in all open transactions, should not exceed 50% on the size of your trading account;
- Rule 2. Use stop orders. Protect your profits by placing an order «take-profit» (take profit), you can also move it as your profitable position grows after the price. Also be sure to place an order «stop-loss» (stop los). So you are guaranteed to save your trading account from fatal losses;
- Rule 3. Not «add» to unprofitable positions. Some traders at the time of leaving the transaction in minus, decide to buy or sell the currency in order to average the price of an open transaction. So they try to save the situation and think, what if the price turns around, then they will close the position to zero or even make a profit. But this goes on for the time being, until greed and hope for the best finally destroy the account of the unfortunate speculator. Indeed, at the time of averaging, you risk 2 times faster to lose everything, if the price continues to move against you.
Remember, that compliance with these 3 fundamental rules of risk management will bring your stability and profitability in the stock exchange game as quickly as possible.
The course is periodically repeated, so don’t be afraid to be late.
Forex Strategies – 3 fundamental approaches to making money in the foreign exchange market
In this section of the article, we will talk about common types of market analysis and the basic principles of decision-making by traders, on the basis of which they build their profitable strategies.
Forex trading – this is the ocean, consisting of market, news and psychological aspects of all players, who are present on it. The direction of price movement in one way or another depends on each of these components.
Here are 3 common strategies, they can also be called analysis methods, which you can be guided by when opening and closing deals.
Strategy 1. Following the trend (trending strategies)
Trend (trand) – this is the global direction of price movement.
The trend is up, when each subsequent peak of the price is higher than the previous. Descending – when price peaks fall one after another. There is also a lateral direction of the price or as it is called «flat» from ang. flat (flat).
This is the price range, where price moves sequentially from one level to another, being within the global price range.
This analysis method and all strategies, based on it, boil down to the following postulate:
In the market, the price always has a certain direction and if you follow it, then your chances of success increase.
From this we can conclude, that you need to trade in the direction of the global trend and how not against it.
The simplest trending strategy is to enter a position at the intersection of two lines – fast and slow moving. Slow moving, respectively, tells us the direction of the global trend, and fast – transaction opening moment.
Trending strategies are a kind of technical analysis, that is, trading decisions are made based on an analysis of the price chart.
Strategy 2. Breakout and rebound trading (trade levels and shapes)
Mostly traders use this strategy, who trade in the price range.
Its essence is, that there are levels on the price chart and a deal opens close to them.
These levels are called support lines and resistance lines.
So, if the price is above the level, then he supports her, that is, the name comes from here «support line». And vice versa, if the price is below the line, it’s hard for her to overcome or as they say break through and then this line is called resistance.
There is a statistical observation, what if price «bounces off» from level (support lines), then she goes in the direction of the rebound (to the resistance line), and if it pierces her, it goes in the direction of breakdown to the next level.
Also, some traders make decisions based on recognition on the price chart, the so-called figures, they are drawn by price and over time statistics tell us, that after the appearance of a certain figure, the price goes in one direction or another and approximately such a distance.
Strategy 3. News development (fundamental analysis)
Important dates for important dates, which directly affect exchange rates and you can build on this when making trading decisions.
for instance, news like this:
- GDP level of a certain country;
- unemployment rate;
- high-level officials ’speeches;
- emergency situations.
If a terrorist attack or natural disaster occurs on the territory of a country, then usually, the exchange rate of this state drops sharply relative to other currencies.
Practicing such news is a good opportunity for making money on Forex.
but, news, which uniquely affect exchange rates do not come out so often. Therefore, it is not always possible to capitalize on this.
News analysis – this is part of a fundamental market analysis.
But there are stock players, who specialize specifically in the news and the general economic situation of countries, while earning a lot of money.
Learn more about Forex Strategies, technical and fundamental analysis, you can on the website like-to-trade.ru, which is a comprehensive online currency market tutorial for beginners.