As a Forex beginner you have so many questions and you do not know where to start.
You are searching for a tutorial that will introduce you step by step into Forex trading as a beginner. Tutorial that will explain in a simple way what is Forex trading and teach you basic terms used in trading.
You are frustrated with technical terms that you have not used before and you are not able to clearly explain them to yourself. How to start trading on the Forex as a beginner is even more hard because you do not know where to start.
I have compiled most asked question's that a Forex beginner ask when he starts trading on the Forex market. I have answered them to help you start because I want you to become profitable trader so you can make some money.
This article is for you, as a beginner in Forex trading, where you will get insight what Forex market is, what are the basic terms used in trading so you can start trading.
If you are a beginner it means that you:
- do not know what is Forex market
- do not know how to trade on the Forex market
- want to learn Forex trading
- do not know which broker is good one
- want to learn Metatrader 4 trading platform
- download and install on PC or smartphone
- open demo or live account
- read charts and currency pair price
- open a trade
- draw support and resistance line
- are curios what is
- pip
- spread
- leverage
- margin
- lot
- trend
- resistance/support
- ask yourself which trading session is on the Forex market
- ask yourself when is a good time to trade
I will cover all possible aspects on Forex trading for beginners and teach you all above from the list.
You need to follow steps in this article because I will guide you step by step. If you do not follow, it can happen that you miss something.
When you finish reading you will have enough knowledge to start trading by your own. If you already have some knowledge on Forex trading then feel free to jump over some steps.
If you want to recall on some topic or read it again so you understand it better, you can get back to this guide.
Forex Trading For Beginners - Introduction
Here are few lines for you which you need to remember as an introduction before continuing further through tutorial for Forex trading for beginners.
They say you can earn a lot of money on Forex. You could hear that over 90% of traders lose their money. Forex trading is hard to learn, easy to give up, gives you high returns and maybe you can leave your daily job and have passive income.
These are one of many words you will read around internet and all of them are true. But be careful because there are always two sides of the story, good one and the bad one.
Should you start as a Forex trading beginner in a Forex market, that is something you should decide. You should decide on which side you want to be when someone talks about Forex trading.
I am for Forex trading side and I hope you are also. What do you say?
1. Forex Trading For Beginners - What is Forex Market
Forex market is a place where you buy, sell and exchange of currency and where the foreign exchange rate is determined. Forex is short word for foreign exchange currency. Maybe you will see somewhere else a word FX used for Forex but do not worry, it is the same.
Who participates in the Forex market?
There are two levels of Forex market. One is interbank market for large banks who makes hedging and trade for their clients. Second one is OTC(Over-The-Counter) market where we, small individuals, come in and trade Forex through broker and online platforms.
It is called OTC(Over-The-Counter) where trade is done via dealer network and it is decentralized system. Dealer network is broker house with which you have account open.
Decentralized means that there is no central place in the world where all transactions are processed and it is not physical exchange like stock exchange, NYSE or Nasdaq.
Place where Forex trading is held in today jargon is a website platform, desktop platform or mobile app on which Forex traders make a trade. Technology like computers, smartphones and tablets makes it possible to trade Forex from anywhere in the world.
Wide specter of choices is what makes Forex trading highly desired platform for making money.
2. Forex Trading For Beginners - Size of The Forex Trading Market
Stock market is liquid and NYSE is the biggest one with few billions U.S. dollar daily turnover. Forex market is larger with 5 trillions U.S.dollar trading volume which is about 1000 times more.
Size of the stock and Forex market can fluctuate because market does not have every day same amount of volume traded. Difference between stock and Forex market can vary between 200 times up to around 1000 times.
On the picture below you can see how much is daily average turnover on Forex market comparing to the biggest stock market, NYSE and Nasdaq.
What makes Forex trading market so highly liquid is trading volume on daily basis. Volume is made by traders transactions which are mostly based on speculation on daily trading and that kind of trading is called intraday trading. The trading done this way makes around 90% of total trading volume.
You could ask yourself if there is something for me, can I benefit from this large market. Yes, you can.
If you have traded already on another market then you can understand what means when the market is liquid.
If not, then you will find out shortly.
Market Liquidity
While it is so huge and have large liquidity, Forex trading market is much better for traders. You can make a trade, buy or sell, whenever you want. You will not have any problems with opening or closing order because someone will always be ready to trade with you.
Problems that can happen on smaller markets is that sometimes you cannot buy or sell currency. Market is slow, spread is large and entering into that trade is risky or it is not worth of trading.
If you enter a trade you never know when you will be able to exit. This happens when there is no buyer or seller.
On big markets, volatility is high which means trading pair price is jumping up and down, traders buy and sell currencies. Volatility is highly appreciated for day traders who like to make many trades during a day.
This is one of the reasons why traders love Forex trading market so much.
Most Important Currency
Currency on the Forex trading market that is most traded is U.S. dollar with around 85% of all transactions. Euro is second with around 40% and Yen is third with around 19%.
Total percentage sum is not 100% because in trading pair there are two currencies. Each currency has 100% and sum of the two currencies gives us 200%.
As you can see U.S. dollar is the largest currency traded on foreign exchange market. This is due to that every bank has U.S. dollar in their reserves and they pay attention what is happening with USD.
Why is U.S. dollar so Important?
It is because U.S. economy is the largest one in the world. U.S. currency is reserve currency of the world and dollar is used as medium of exchange for some commodities as oil.
Oil is sold in U.S. dollar so you can see on TV that oil barrel is defined in U.S. dollar and if someone wants to buy oil he needs to have U.S. dollar in his pocket.
3. Forex Trading For Beginners - Market Structure
First lets take a look who are the participants on the Forex market so you can easily follow next part of the article.
- Major banks
- Electronic Brokering Services(EBS)
- Medium size and small banks
- Retail market makers
- Retail ECNs
- Hedge funds and commercial companies
- Retail traders
On the upper side of the Forex trading market you see large banks who holds most currencies.
On the next level we have hedge funds, retail market makers and retails ECNs who make transactions through commercial banks. Because all mentioned participants are on the second level they have worse rates compared to top level banks. If you want to have best rates you see where you should be, on the top level.
On the bottom are we, small retail traders who trade over retail market makers, also known as Forex broker. While we are at the end we pay higher rates when trading currencies on the market but those rates are acceptable. Many brokers are fighting for customers and everyone is looking to lower the rates in order to attract new traders.
4. Forex Trading For Beginners - What is Forex Trading
Forex trading is currency exchanging on the Forex market. Currency is traded because someone needs to exchange their currency for another currency. Another currency is called foreign currency and those who exchange currencies mostly are the banks.
Currency on the currency exchange market have its price and price depends on the country health. This means if economy is good, price of the currency will rise. In trading pair, exchange rate of base currency against quote currency is reflection of those two economies.
Trading Currency Pair
Trading means you trade currency pair where base currency is currency you are buying or selling against quoted currency. When you buy currency in currency pair , let say EUR/USD, it also means you are betting that the Euro economy will get better through time compared to US economy.
In Forex trading you choose what you will do with trading pair. Will you sell or buy, it is up to you. Whatever you decide you can earn money with that trade and also lose money if trade goes against you.
Mostly people start trading on Forex market as a side job for passive income for their home budget. Some of them after a certain period switches to trading as a daily job.
Those who succeed in trading and switches from side job to daily job as a trader are the ones that have proven trading strategy and money management which is confirmed by steady income on their Forex account.
I can say that trading in Forex market can bring happiness when market is moving your way but also bring sadness when it is moving in wrong direction. Same thing happens to your Forex account. It is rising when market is moving your way but also melting when going against you.
Bid and Ask Price
Trading pair consists of two prices, called bid and ask price.
Bid is a price at which broker is willing to buy base currency. It means that the bid is the best available price you can get for selling it on the market.
Ask is a price at which broker is willing to sell base currency. It means that the ask is the best available price you can get for buying it on the market.
Difference between bid and ask price is spread. Spread is calculated in pip where pip represents smallest change in the trading pair price.
5. How Can I Become Better
Forex trading is a skill which you can learn with invested effort by reading, practicing, reading again and practicing again. Without practicing you will not become any better. Trading is a skill like any other skill you learn through your life.
Any skill you learn in your life is a skill that required from you to be persistent and to repeat same actions many times. After you have sharpen your skill you have become better in what you are doing with that skill.
You learn how to walk by crawling, falling on you ass, again crawling and falling again. But after certain period you start to walk with less crawling and with less falling.
This is the same way you have to do in Forex trading but you need to put more effort and never give up. Do not let bad trades turn you away from Forex. You should do it opposite, become better trader by analyzing what you have done wrong and not to repeat same mistake again.
6. Forex Trading For Beginners - Forex Trading Broker
To start trading on the market with real money you need to have access to the Forex market. Broker is the one that allows you to participate on the Forex market. You need to register and open trading account with a broker and then download trading platform from the broker website.
Choosing good Forex trading broker is not an easy task and it can take time until you find good one. To whom you will trust and give your heavily earned money needs extensive research.
You want that your invested money is secured so you do not waste any additional time watching is something goning to happen to your money.
Forex Broker Regulation
Reputable Forex broker will have certificate from regulatory agency at least in the country where he is located. Some have additional certification in other countries which gives them more credibility.
There are brokers without any regulation who work on their own discretion and they pose a risk to your invested and heavily earned money. This means if you open account with them they can, if they want, close your account without notice and all your funds are gone.
Some traders have said that their broker have open a trade without their knowledge and lose all money on the trading account. After that, trader could not reach them to get back his invested money.
Regulatory agency watch out that broker business practice is honest and according the law. Agencies pay attention to ensure that your funds are secured and you are protected from fraudulent practice. You can read that some of your invested money up to some amount is secured by regulatory agency if broker go bankrupt.
How to Check is Broker Licensed?
Watch does he have licence from various regulatory bodies. Here is a list of several regulatory body in different countries:
- Financial Services Authority (FSA) in the UK
- National Futures Association (NFA) in the USA
- Ontario Securities Commission (OSC) in Canada
- Australian Securities and Investment Commission (ASIC) in Australia
- Financial Services Authority (FSA) in Seychelles
- Malta Financial Services Authority (MFSA) in Malta
- Estonian Financial Supervision Authority in Estonia
It is always good to choose one of the best brokers and who have win some of the awards which gives them higher credibility.
Invest your time to explore brokers and find the best broker for you.
7. Forex Trading For Beginners - Forex Trading Market Legitimacy
If Forex trading is not legit then no one would trade on this market. You can see Forex brokers advertising on the web or maybe in your city. Without legal background they could not show themselves to the audience.
In some countries Forex trading is not allowed for some reason so before you start making a plan to open a trading account with a broker, check are there any restrictions on Forex trading from your government.
8. Forex Trading For Beginners - When Does Forex Trading Market Open
Forex trading market opens on Sunday at 5 PM and close on Friday at 4 PM EST(Eastern Standard Time).
Eastern Standard Time is equal to UTC - 5 hours. UTC stands for Coordinated Universal Time.
In simplified language UTC is measured as time in London and EST is easily to calculate. For Forex market this means that it is open from Sunday 10 PM and close on Friday at 9 PM London time.
Even that market opens in early morning it does not mean that traders are trading in high volume. This does not happen because people are sleeping or they are not at work place.
On the Forex market there is four major market trading sessions you should watch.
Those are:
- Sydney
- Tokyo
- London
- New York
These four market is the largest one, London market among them as the biggest one because on this markets highest volume is traded.
Another point you should remember that highest liquidity is when 2 of these four market is open at the same time. This overlap brings large amount of traders, trading volume increases and liquidity is high.
9. How to Earn Money on the Forex Trading Market
To simplify the process of earning money by trading on the Forex market I will use two currencies as an example, Euro and U.S. dollar.
By trading on the Forex market you a trading currency pairs. That means Euro and U.S. dollar are connected in a pair. When I connect these two currencies I get Euro/U.S. dollar.
The combination of Euro and U.S. dollar in Forex market is written as EUR/USD which is short version of Euro/U.S. dollar.
Now, the currency pair EUR/USD have a price which is written as EUR/USD = 1.1200. The price 1.1200 is the same as if I write like this --> 1xEuro = 1.1200 U.S. dollars.
That means that 1 Euro is worth of 1.1200 U.S. dollars.
Your job as a Forex trader is to predict will the value of 1 Euro fall or rise in price. If the price of Euro rise you will get 1 Euro = 1.1205 U.S. dollars. That is equal to EUR/USD = 1.1205.
To make money by trading on the Forex market you need to predict correct direction of the price. Will the price rise or fall down.
When you make a decision, for example you say that the price will go up, you need to open buy order. Buy order should be open when you want to make money if the price is rising.
When you think that the price will fall down you need to open sell order. Sell order should be open when you want to make money if the price is falling.
So, basically, Forex trading is buying and selling of currency pair. Meaning, you are predicting where the price of currency pair will go and by predicting correct direction you make money. If you do not predict correct direction you will lose money.
To start trading you need to to know how to open buy and sell order.
10. Forex Trading For Beginners - Open Forex Trading Account
To trade on the Forex market you need to have money and trading account on which you will deposit that money.
To open a trading account you need to have a broker. When you have selected a good broker you need to register and open trading account with that broker.
To open trading account you need to enter your e-mail address and password for your account. Some brokers will ask you to do few more steps before creating account like uploading documents for verification. Before you can get approval of trading account broker needs to verify your identity with the data you have provided when registering account.
After you have created account you will receive login information to your Forex trading account. Login data contains your trader account, password and server information.
With these login data you need to connect on MT4 platform. Open Forex trading platform and input your login data and find trading server.
To help you open new trading account I have put images on each step to make it easy for your to understand and to open account.
11. Forex Trading For Beginners - Is Forex Trading Profitable
Trading can be lucrative and can bring huge income. You can find many stories on the internet about how trader earn so much money that he give up on daily job and then focus only on trading.
This story, for some of them, is true but for majority of traders it is not. Traders mostly lose money on Forex market and you can read lots of information talking about that more than 90% of traders loses money.
Majority lose money because of lack of experience, bad money management and psychological status of their mind. If you are already a trader you have experience with greed and fear. These emotional states influence traders in a bad way in specific situations.
If you want to be profitable in the long run you need to have few things prepared. You need to have trading strategy that will tell you when and how to trade. How do you control the risk on each trade is monitored over risk management strategy.
So, having two strategies, trading and risk management, you will increase a chance of being profitable. To those those two strategies you need to be disciplined and patient so you can execute trading strategies without being affected by emotions like fear and greed.
Knowing that you can lose money does not seems as a good choice to start trading on the Forex market. But there are many reasons why Forex market is a good opportunity for any beginner in trading. Check the reasons why should you trade on Forex and start trading today.
12. Forex Trading For Beginners - How to Invest in Forex
Investing in Forex is easy and a first way how to invest in Forex trading is over broker. To do that you need to have a trading account with a broker. When you have a trading account you can use tools that broker provides you to deposit money on your account.
With money on your trading account next step is to download trading platform on which you will use your trading account and start trading.
After account is open, platform is downloaded and money deposited you can say that you have invested in Forex. With money deposited you can start trading on the Forex trading market.
If you do not feel comfortable trading on your own you can find a trader that can trade for you. There are several ways how to find a trader that can trade for you and one way is to ask your broker do they have account type that is managed by someone else.
It is possible to invest through other channels except directly trading through trading platform or by having some else trading for you. This is done through investing in some ETF(exchange-traded funds) or mutual funds that provides exposure to foreign exchange market.
Like any other investment, investing in the foreign exchange market involves risk so pay attention so you do not make beginner trading mistakes.
13. Forex Trading For Beginners - What is Difference Between Forex and Stock
What is Forex trading market advantage comparing to stock trading market? Is there big difference between them?
Yes, there are several differences and advantages that Forex market has compared to stock exchange.
Forex and Stock Market Size
Forex trading market is a large currency exchange market comparing to stock market in volume traded. Stock market have thousands of companies listed on the exchange comparing to Forex market which have dozens of currencies.
In case of a trader, Forex market is easier to follow because of small amount of trading pairs. Stock market is hard to trade while it is not easy to pick a good company to trade on the exchange in a pool of thousands companies.
Forex market have few major pairs which are traded by majority of traders and thus it is easier for you to watch those pairs and make a trade.
Working Hours
Forex market have 24/5 hour market where stock market is open only during a day from 08:00-16:00h (this is different from city to city but we can put them in this frame).
Forex working hours gives you opportunity to decide at which time of the day you want to trade. Day or night, Asian or European time, London or New York session.
You can decide, connect on the trading platform and open a trade based on your trading strategy.
Low Commissions and Fees
Forex broker can charge commission or fee related to trading. Most of them do not charge this type of costs to trader.
Mostly, only cost that trader has is bid-ask spread on trading pair which can be different depending which pair is traded and is there any factors that impact currency in trading pair.
Compared to any other market, Forex has low trading costs for trader.
Influencing the Market
You have heard that on the stock market one of brokerage firms have give their analysis and recommendation to buy or sell a stock. Yes, you have heard that. I have many times.
If brokerage firm is well known in stock market then traders can be influenced with this analysis and start to buy the stock.
In Forex market this is less likely because analysis from one broker, not matter how large he is, could not have impact on the market in a way like on the stock market.
This way Forex does not have market manipulation as a stock market does.
14. Demo Forex Trading For Beginners
As a Forex beginner one of the best things you can get at the start is demo account. Demo account for trading with real market conditions but only with small difference.
That difference is the money. On the demo account you are trading with virtual money and whatever happens to that money you do not lose anything. If you lose all what you have at the start you can simply reset trading account balance and start over.
If you do not have demo account you would need to invest real money and start trading. While you do not have any experience in trading you would lose all what you have invested.
All brokers now offers demo account for their customers because they know how important is to learn how to trade on demo account.
In the start you will ask your self how long should you stay on demo and learn how to trade. How much time you need to invest in demo trading depends on your trading results.
If you are not profitable on demo account you can be sure that you will not be profitable on real account. Being profitable on the demo account is not enough without having profitable strategy.
Profitable strategy is written strategy with steps you are following all the time and strategy that has been tested in the market.
The only reason why you should not go immediately on real account is because you will lose your money. Simple as that.
Try to resist going on live account until you are profitable on demo account. Be sure that you will lose money if you go on real account before being profitable on demo account. The only reason is that trading on real account is harder than on demo account.
Why is harder trading on live account compared to demo account? As said above, demo account have virtual money and what happens to that money you do not feel any connection to it. As it has easily appeared on your trading account it can easily disappear from your trading account.
But when you start trading with your money which you worked hard for then losing that money will be hard to accept. You will start to look not losing to much and you will make mistakes that many traders do.
When you start trading pay attention on one trading pair because it will be easier for you to understand first steps and you will not wonder around.
Also, choose major pair while they have smaller spread and higher volatility.
Trading on the demo account you will create good habits that will help you in a long run. Demo account will give you chance to master different market conditions where you will test your emotions during trading.
15. Forex Trading for Beginners - Painful Tricky Question About Demo Account
When you start working on the demo account you will experience a lot of problems that are common when you start trading as a beginner.
Many beginners experience problems like resetting amount of money on the trading account or how to reset password.
When you start trading everything will be strange and to much to comprehend at the start and it is normal that you will have many problems or questions.
As you make mistakes and you find solution you will become better and you will reduce number of problems you cannot solve.
Until you become experienced to help you solve problems I have collected usual questions about demo account and answered them.
16. Forex Trading for Beginners - How to Download and Install Metatrader 4 on PC and Smartphone
Before you start trading as a beginner you need trading platform on which you will have account that allows you to open orders.
Most used trading platform for the trading on the Forex market is Metatrader 4. There are more trading platforms like Metatrader 5 which is newer version of Metatrader 4 but for now as a beginner you can start with Metatrader 4.
You can download trading platform for free from Metaquotes website or you can download it from a broker website.
If you want to use Metaquotes trading platform you do not need to register account in order to download it. If you want to use trading plaform from a broker then you will need to register trading account.
If you just want to taste how trading looks like then it is the best that you download free version on your PC or smartphone. In a few minutes you can be ready to trade on the Forex market.
Here are the instructions how to download Metatrader from Metaquotes website.
17. Forex Trading for Beginners - What is Metatrader 4 and How to Use Metatrader4
When you have Metatrader 4 trading platform on your PC or mobile phone you need to set up trading platform.
That means, you need to set up charts which will show you currency pairs for trading and to allow you easily read where the price could go. You need to set up windows that you will use mostly in your trading. Some of the tools are not necessary so you can remove them to free up space for charts.
As a beginner in Forex trading you start without any knowledge how to read and to set up charts for trading. Charts are important tool and you I can say one of the most important among all tools you have available.
Chart shows you where the price was in the past, where it is now and allows you to make a prediction where it will go.
Other tools you could use are lines that are drawn on the chart, bars that shows the price of the currency pair and colors of the candles that can help you easily read the current market status.
To help you set up Metatrader and to clarify some of the most important windows in the trading platform I have made an article about how to use Metatrader4.
18. Forex Trading for Beginners - How to Set up Charts on Metatrader 4
Charts are the most important tool you use in trading on the Forex market. If you do not set them properly you will make your trading much harder than it has to be.
Clean charts with proper tools will help you understand market movements much clearer and help you start trading much faster.
Each chart have settings that you can set up by your preferences. Do you want to have red or blue chart with black background, it is possible to make that happen. Will that be a good choice to read the charts, well I think not.
There are three types of the chart:
- candlesticks chart
- bar chart
- line chart
Most used chart type is candlesticks chart where each candle represents market behavior which can be translated as a human act on the market.
In order to help you set up charts properly so you have good trading experience I have made instructions how to set up charts on Metatrader 4.
19. Forex Trading for Beginners - How to Open and Close Order in Metatrader4
If you want to make money by trading on the Forex market you need to open an order. Order can be sell order where you predict that the price of the currency pair will fall down.
If you open buy order you predict that the price of the currency pair will move up. If you fail and do not predict correctly you will lose money.
The nice thing in Forex trading is that you can place an order that will open in the future. That means, if you think that the price will rise in the future and it would be good to enter when the price reach certain level, you can set an order that will open at that level.
That kind of the order is called pending order. You can set pending order for sell or buy scenario.
There are certain rules you need to follow to open any type of order. The rules are easy to understand and I have made a post for you how to do that. I have made examples to explain you in more details how to open and close order in Metatrader 4.
20. Forex Trading for Beginners - How To Draw Support and Resistance Trading Line
When predicting where the market will move you can use a tool called support and resistance line. Those lines represents possible level where the price will find a support or resistance and it will either change the direction or it will go through that level.
To help you make a better trading decision as a beginner in trading you should use these lines to increase your chances to make decisions that will give you more profit on each trade.
At the start you can be sure you will not know how to draw support and resistance lines. To learn how to draw them you need to have experience. You need to know where are the levels that you should connect together to get the level for the future possible support or resistance level.
As a Forex beginner you need to learn how and where to draw these lines. To help you with that I have made examples on the charts so you can see how to use support and resistance lines in trading.
21. Forex Trading for Beginners - How To Perfectly Draw Trend Line
Like support and resistance lines there are trend lines that helps you predict future movements of the currency pair price.
Trend lines are the lines, as their name suggests, that make a trend in a shape of a trend to determine future price movement. It can be up trend where the price is rising and it can be down trend where the price is falling.
Trend line is also called dynamic support and dynamic resistance line because the level is not fixed as on the horizontal support and resistance line. On the trend line support and resistance line dynamically changes as the price moves through the channel.
To draw a good trend line channel you need experience and precise eye or you will not draw them correctly. Certain rules you need to follow to draw them to show you support and resistance levels.
Trend lines are not so easy to understand just with writing so I have made several examples how to perfectly draw trend line.
22. Forex Trading for Beginners - What is a Pip in Forex
Meaning of a pip in Forex is about price that moves up or down on the chart. The change of the price is expressed with the small unit that is called a Pip.
Pip definition say that the term “pip” is from Percentage-In-Point or Price Interest Point.
Meaning of a pip is smallest change in the price of a currency in Forex trading. If you see that a currency changes the value by 1 cent(example U.S. dollar), in Forex trading the change will be defined by the pip which is 100 times less than a cent.
If the price is show as 1.1201 U.S. dollars that value is equal to $1.12. The rest of the price, 01, is not shown because in our common life we do not have value less than a 1 cent.
In Forex trading we have value less than a 1 cent so we have 1.1201 which is 100 times less. When this small change happens from 1.1201 to 1.1205 we say that the price has changed 4 pips.
In trading that small change is important but in our common life change by 0.04 cent does not make any change.
Change in this small amount is used to better determine price of a currency on the Forex. Traders use that small change in price to make money.
Now, to make that more clear I suggest you check the real example about what is a pip that you will encounter trading on the Forex market.
23. Forex Trading for Beginners - What is Lot Size
Many Forex beginners have a problem that they cannot understand what is lot in trading. The most common situation for a beginner is to open an order without knowing what does each variable mean in a process needed to open an order.
The result of that action is very high exposure on each trade where small change in the price destroy trading account. Forex beginner should learn by the examples on the demo account how the lot size influence on the trading result before opening an order on the live account.
If you use small lot size, something like 0.01, you will make small amount of money per each pip. In case if you use larger lot size, something like 1.00, you will make a lot of money by each pip.
There are three most used lot size type which you will see while trading as a beginner or experienced trader. Standard lot size, mini lot size and micro lot size.
Each lot size represent how much currency you will trade. If you use standard lot size which is 100,000 units of a base currency in currency pair you will select 1.00 when opening a trade.
If you want to use mini lot size you will select 0.10 when opening new trade and that represents 10,000 units of a base currency in currency pair.
The third lot size is micro lot size which is equal to 0.01 when opening new trade and that represents 1,000 units of a base currency in currency pair.
How does each lot size impacts on the trading results is something you need to learn. Using the standard lot size you will make money more compared to using micro lot size. And the difference is 100 times.
Using examples will be easier to understand where is the difference between different lot size so read more about what is lot size in Forex trading.
24. Forex Trading for Beginners - What is Leverage in Forex Trading
To control more money in trading, like 100 000 units of a base currency which is equal to standard lot, trader must have that amount of money.
Forex beginner usually do not have that amount of money. starting capital of a Forex beginner is around $100 up to $10 000 and to control standard lot he use the leverage from a broker.
Leverage in Forex is borrowed money from the broker. It is virtual money that allows you to trade higher volumes on each trade.
While leverage can be a great tool to help you make more money it can be a bad tool that helps you destroy your trading account balance much faster.
The leverage always exceeds the amount you have on your trading account. Meaning, if you have $1,000 on your account you will borrow at least several times more than that amount(1:2, 1:3 or more).
Usual leverage that broker offers is from 1:2 up to 1:100 and that is the leverage that most traders use. But some brokers offers you 1:500 up to 1:2000 which is quite large and unnecessary in trading.
If you have leverage 1:100 with initial deposit of $1,000 you will control $100,000 in trading on Forex. That allows you to open 1 standard lot which is equal to 100,000 units of a base currency.
Read more about what is leverage and try not to use to big leverage because you will speed up the road to destroying your account if you are not careful.
25. Forex Trading for Beginners - What is Margin in Forex
Any trade you open with leveraged account broker will use amount of money from your trading account and put that amount on the side. That amount is called margin and it is the amount that is different on each trade you open.
The margin amount that is set on the side when you open a trade, broker use to open the trade on the Interbank market. He does not use only your margin but also margin from other traders and with large margin he puts the trades on the Interbank market.
The calculation of needed margin amount is done by the Metatrader trading platform. You do not need to bother with the calculation but it is good to know how calculation is done.
Manual calculation is useful if you want to know how much of money your broker will set aside as collateral. If you do not have enough money for margin you will not be able to open order with desired lot size.
To prevent being rejected by the trading station when you want to open new trade you need to know how the margin is calculated and how it is used. That way you can predict will your current balance on the trading account be sufficient to open desired trade with desired lot size.
26. Forex Trading - Become Millionaire
Forex trading is not easy and you should not approach to trading as a easy way of making a lot of money.
When you start trading you need to understand that you will lose money, more or less. There is no trader on the Forex market that did not lose some money and majority is losing all what they invest.
High percent of the traders lose their money because they do not pay attention on money management and they do not use proper tools like stop loss to minimize loss on each trade. They do not have trading plan, do not have discipline, they have bad trading technique and emotions like greed affect them.
Invest What You Can Afford to Lose
If you do not have money to invest and which you can afford to lose, do not enter into trading with borrowed money. You should invest only if you can afford to lose all what you have invested because there is potential that you will lose all, especially as a beginner.
At the start invest small amount and through time if you trade very well you can decide to invest more. With small investment, $50-$100 you will not make much in trading but it can be starting point.
If you want to earn more you will need to invest more. With more investment you will be able to open order where small movement will give you more profit.
Have in mind that lack of discipline, which is crucial in Forex trading, will not bring you happiness and large account. You will not get rich very fast and as all jobs this one requires strength, mental strength, discipline and hard work.
Forex trading requires hard work with which you will get experience. Experience will sharpen your skills in trading, your eye will become more focused and it will recognize good patterns to trade.
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