Guide to Forex trading for beginners
Joining the Foreign Exchange industry as a trader has never been easier as it is today. Everyone can start trading despite their education and most importantly despite the budget. Forex trading comes with some very obvious advantages, the market s available 24/7 meaning that one can decide himself when he wants to trade and for how long. It is easily reachable, all it takes is to register your account and you are already in a game. Probably you have seen people saying or writing that Forex trading can be for everyone – at some point it is true, giving enough effort and time everyone can become a trader and benefit from Forex trading. This is why Forex is getting more and more popular and many people are turning to it. However, the majority of them are easily getting confused because they simply do not how to how to start. Forex trading for beginners seems very hard to understand and many of them are getting stuck on their first steps just because they do not have a clear direction. But I promise it is not that hard, if you will take it step by step it will be easier to get and this is what we will be doing with this article. So how to start?
How to start trading
Starting something new that you do not understand completely is truly hard and somehow even frightening. Therefore the first step is to understand how Forex trading works from the eyes of the trader itself. Let’s see the example. John wants to start Forex trading but he has never done it before and does not know how to trade Forex in South Africa. The first thing he does is searching for information about Forex trading and finds out that for trading there is no need to be physically present in exchange and all can be done online. Moreover, it can be done with laptop and internet only and now he wants to start it even more. He starts reading about Forex trading and gets to know how the trading process goes and what is Forex all about. After some time he thinks that he knows enough to actually start trading. For this, he needs to find the broker that is available for residents of South Africa. Once he has made his choice he opens an account with it, deposits some money and starts trading.
It is the cycle every trader walks through after the first thought about trading to actually starting it. These are the steps that every trader should take, however, John has missed some of the important steps, that could make his journey to Forex trading easier. Many traders repeat the same, so let’s see how can you start Forex trading successfully and what are the most important Forex trading tips for beginners.
What you want to trade
Before you actually start the trading process you need to make some important choices. First is what do you want to trade. On the Forex market, you can trade currency pairs or CFDs on currency pairs. So what does each of them mean?
Currency pairs: Forex is a Foreign exchange market where traders are speculating with the currency exchange rates. There are three types of currencies one can trade: major, minor and exotic.
The major currencies are for example USD, EUR, GBP and some more, so the major pairs are the ones that consist of USD on one side and another major currency on the other side – GBP: USD.
The minor currency pairs consist of the major currencies that are paired up with each other but not with USD, for example, EUR: GBP. The exotic currency pairs are the major currencies with the currencies of a developing country, for example, USD: ZAR.W
hen you are trading with the currency pairs itself is known as spot or margin Forex and it means that you buy and sell the actual currencies.
Forex CFDs: You might have seen brokers offering CFDs on currencies alongside with the currencies itself. CFD stands for a contract for differences. Trading CFDs is the opposite of spot Forex. You do not actually buy and sell currency, but you get profit on the price movements without having the assets itself. There are many different CFDs, it can also be on shares, bonds, commodities, indices, and cryptocurrencies. It can also be traded with the Forex brokers. You can learn more about CFDs trading here
Before you start trading you need to choose what do you want to trade. All of the brokers have different trading assets, some might offer currencies only, even in this case different brokers offer different currencies, some might have only the major currencies, some can offer others as well. Some of the brokers have a wider selection of the trading assets that will include CFDs too. Once you can get some experience you can try many of them but I would advise choosing one as a beginner trader.
How to trade Forex in South Africa?
Choosing what you want to trade is important but you can always change it without any consequences, however, the more crucial choice you need to make when starting to trade is choosing the broker. Does not matter if you want to trade as a hobby or you are interested in trading Forex for a living, you want your trades to be successful. The broker has the greatest impact on your success, to say it otherwise it can make you or break you. Choosing the right broker is hard not only for the new traders but for the experienced ones as well. However as the new player in the Forex industry beginner traders does not know what they need to pay attention to and unfortunately, they are the ones who are tricked by the scammer or fraud broker. Here are some tips for beginner traders that will help you make the right choice.
Regulated vs unregulated brokers
There is no regulatory body that regulates all of the brokers, instead, all the countries have the financial authority or regulatory body that oversees the Forex industry, sets the regulatory framework for the Forex brokers and ensures that they are operating without violating any rules. The main purpose of regulatory bodies is to keep the investors’ money safe. Not all the regulators are the same, some of them are more strict and active, some of them are less reliable. The most reliable regulators are FCA – UK regulator, ASIC – Australian regulator, CySEC – Cyprus regulator and some more. In South Africa authority that regulates Forex brokers is FSCA.
There can be four cases with the international brokers operating in South Africa and their regulations:
- The Broker has several regulations by most reliable regulatory bodies and it is regulated by FSCA as well. Trading with this broker means that your funds are safe and there is no chance of the broker to be a scam. However, if you face any problem with it, you can approach FSCA.
- The Broker is regulated by reliable regulatory bodies but does not have FSCA regulations. While it is always good to have a broker that is regulated by the local authority as well, you can safely trade with the ones that are regulated by the respected regulators
- The broker is regulated by the offshore regulator or is only regulated by the FSCA – I would not suggest choosing the offshore regulated brokers or the ones that are regulated only by the FSCA as these regulatory bodies do have a well defined regulatory framework that can be found with other regulators.
- The broker is unregulated. If the broker does not have any regulations there’s a high chance of fraud.
The cost of trading with the broker
Forex trading for the beginners sometimes ends up bad because they simply oversee the cost of trading with the particular broker they choose. There are several things you need to consider.
- Minimum Deposit – minimum deposit is not something that goes to the broker when you are funding your account. It is the money you are depositing on your account to trade with. The broker sets the minimum deposit you need to put in to start trading with it. Sometimes the amount can be higher than you want to deposit, therefore, you need to choose the one that offers an affordable minimum deposit for you. The choice is quite wide, the amount can start from USD 5 and go up to USD 20.000. The average amount is USD 200 – 250.
- Spreads – Many of the brokers are taking their profit from spreads, which is good. However, the spreads should be as tight as possible.
- Commissions – The broker that does not take profit from spreads are receiving it through commissions so it is better to choose the broker that gets money via spreads. Some brokers might have commissions for deposit and withdrawal, inactivity fees and fees for maintaining the account. Ideally, you should choose the broker who does not have any commissions at all.
Quality of the service
When you learn how to trade Forex in South Africa you want to do it with the broker that offers high-quality service. The first-hand experience is always better but you cannot try out all the brokers, at the same time why would you do it, when there is already a tool that you can use for it. The best way to understand if the broker has a good service, as well as learn about its regulations and costs is to read the best South African broker reviews. With the help of the reviews, you can determine if you want to start trading with this broker or not.
The best way to start Forex trading
You should not start Forex trading without getting yourself educated about it. However, the theoretical knowledge solely will not take you any far, you need to put this knowledge into the practice and try it. But there is a problem if you are just starting out and have never traded before, it is risky to start trading with the money you might lose. Therefore some of the brokers offer the demo accounts. Demo accounts are kind of Forex trading tutorials. Almost all the good brokers offer demo or practice accounts and I would strongly suggest choosing the broker that has this option and start with it.
Demo account is a simulation of Forex trading, the trading process with it is exactly as it is on the real account. The only difference is that you are not trading with the real money and hence you cannot get the real profit. With the demo account, you can learn how to trade, try out the new strategies and evaluate your skills. Most importantly you can do it calmly without any financial stress since there is no real money involved.
Getting a demo account is very easy, you simply choose the option of demo account with the broker, it comes with the virtual money you can trade with. With the most brokers once your balance is over it will be automatically refilled with more virtual money. Some of the demo accounts are limited to 30 days, some does not have time limitations and you can use them as long as you need.
Learn your strategies
Forex Trading tips for beginners always include a word or two about the strategies for a good reason, it is a very important part of the trading process. You cannot just wake up, sit down at your computer and start trading without having any strategy or a plan. In this, I do not mean a general plan, but the detailed plan with the short, mid-term and long-term goals. You need to define what you want to get from the Forex trading, what resources are you willing to put in including time and money resources. At the same time, you need to define which strategies you will use in your trades.
- Choose the currency pairs strategically – as I have mentioned above there are a lot of currency pairs. It is absolutely up to you which one you will choose major currency pairs, minors or even exotic ones, the main thing is that you need to make a thoughtful choice. In other words, the currency pairs you will choose to trade should work for you and help you achieve your goal.
- The plan – the plan is not just “I need to trade tomorrow.” You need to define how much time will you give to the trading and how much money you can allow yourself to put in your Forex trading, if you are starting trading Forex for a living you will have to devote it more time. The plan should also include the realistic goals for your profits for a certain period of time. Once the time is over, you can go back to it and see how successful you were in accomplishing your goals.
- Strategies – With Forex trading you need to be strategic. There are many legitimate strategies for trading that you can use for your trades. After some time you will also be able to come up with your own that work best for you.
Here’s where many of the new traders are getting mistaken. They all expect that the trading will make them rich in a short time, therefore, they are willing to spend money to get more money. Am sorry to disappoint you if you are one of those people who still think so you but it does not work this way. Yes, money makes the money but only when it is done in a smart way. So how to start Forex trading in the right way? Start small.
The great way to do it is to apply for no deposit bonuses. Let’s say you went through all the steps mentioned above, you have practiced trading on a demo account for some time and now want to switch to the real one. It would be a great idea for you to check if the broker you were practicing trading with also offers no deposit bonuses. If not, you might consider checking with the other brokers. Here you can find some of the brokers offering a welcoming bonus in South Africa.
With this kind of bonuses, you can get a small amount of money from the broker as a welcoming gift and start trading with it. It is a good way to start real trading as you are not risking your own capital if you lose this money in trades – it’s fine, moreover, the profits you will make with the trading is yours.
Otherwise, if you want to start Forex trading with your money you need to make sure that you are not spending more than you can. If you are trading Forex for a living or otherwise, of course, you want to make a big money out of it, you can be very optimistic about your trades, but in reality, not all of your trades will be profitable for you. You might as well lose some money and it is normal too. However, you should only allow yourself to lose as much as you can. To put it simply, you should not be losing the money that you absolutely need for the necessary things just because you hope that you will get more. In the end, this approach will only lead you to be angry and disappointed that will affect your trades in a very negative way. Start small and safe and increase your deposits steadily once you see that you got more experience and your trades are getting more profitable.
We are almost at the finish line of the step by step Forex trading guide. If you made this far it means that you are pretty much serious about starting trading. Here’s another advice from me. Once you start trading, does not matter if you are trading on demo or real account keep recording your trades and strategies that you are using. While just starting out especially with a small amount of money you are able to freely switch the strategies and be more flexible with it. You can try many different approaches, some of the different currencies and so on, if you will not keep the recording of it, you will not be able to evaluate your job or see how good you really are. The recordings will allow you to go back to it and see what works best for you. If you were successful over time but you are loosing now, you will be able to see what have you changed or vise versus. The recordings will become a truly powerful tool for you that you can use to make your tradings more profitable for you. Of course, it will take some time and might even be boring for you, but trust me, you will thank yourself for taking and using this advice later.
The final advice on how to trade Forex
Last but definitely not least, when the new traders are asking me for the Forex trading tips for beginners the first thing that comes to my mind is education. And believe me, expecting to hear some of the mysterious secrets of Forex trading they are not very happy to hear this simple advice. But let’s put it in this way. Imagine you wanted to go on the trip for a long time, you were saving money for it, preparing for it and finally, the time has come. You are taking the long journey and of course, you need to fill the gas tank with fuel. You will fill it up completely but while on the road eventually, you will need to fill it up again and again. The same is with the Forex education – it is the fuel for your tradings and the more you trade the more you will have to learn to make your trading more profitable.
That’s it, now you are ready to take off and start Forex trading if you will follow this step by step Forex trading guide I am sure that you will not find it complicated in the process and won’t give up because of it. Moreover, you will be able to master Forex trading and advance from the beginner level to professional very soon. Good luck!