Forex is a unique financial platform. It gives traders an opportunity for both incredible profit and equally incredible loss. Thousands of people every day decide to test their skills or just try their luck in an endless financial race. Most traders do not even suspect where their overestimated ambitions will lead them. Before embarking on this dangerous path, we advise you to study the topic carefully and weigh all the pros and cons. If the desire to try yourself as a trader does not disappear after that, here’s the plan of action to place your first Forex trade.
Step 1. Choosing a broker
Choosing a brokerage firm is one of the key points in Forex trading. Your chances of success directly depend on the broker’s good faith. Remember, it’s brokers who actually trade in Forex, not traders. It’s brokers who offer you sets of financial instruments, set the size of spreads and commissions, swaps, provide you with quotes and liquidity. You must approach this choice very responsibly, so you won’t blame the broker for your failures later. Pay attention to the broker’s rating and reviews on the web, but remember that the Internet can not always be trusted: the larger the brokerage firm is, the more competitors it has, and they usually know how to keep themselves busy. The final decision should be made based on whether the offered trading conditions are suitable personally to you and your goals.
Step 2. Installing the trading terminal
After you have chosen a broker, you can proceed to the next step — the choice and installation of a trading terminal. It will help you to trade in the market, so the choice should be taken no less responsibly. There are many terminals that differ in price and functionality. For a beginner, a simple free platform is often enough. A trading terminal can be downloaded directly from your broker’s website. Installing doesn’t take much time and effort. Be sure to study all the functions of your terminal before starting to trade.
Step 3. Creating a demo account
As soon as you understand all functions of the trading terminal and excited to plunge into the world of trading, you can proceed to open an account. But before starting to trade real money, first you need to practice in a demo account. A demo account is a training account for beginners. Demo accounts use virtual money, so you don’t have to risk your real funds. Demo accounts is completely identical to real ones, with the same interface, functions, and trading mechanics. Even experienced traders use them. Be sure to try it out before opening a real one.
Step 4. Opening a real account
And finally, after you’ve thoroughly studied the terminal, tried trading in a demo account and made your first (virtual) profit, you can proceed to open a real account. Congratulations, you are already at the home stretch!
Deposit money into your trading account and start trading. Choose trading instruments to your liking. You can start with popular currency pairs such as EUR/USD or USD/JPY. Let’s take a look at a specific example of EUR/USD.
First, you need to look at the price chart and try to predict which direction the price movement will take. Let’s say we decide that after a certain time the curve will go up and reach 1.1025. To make a profit, we need to buy EUR/USD now at a price of 0.0982, and then, when the price rises, sell.
Open a new order in the "Trade" tab:
In the pop-up window, specify the details of the transaction:
Remember that "Volume" in Forex is always measured in lots! One lot is equal to 100,000 units of the base currency, that is, in our case, the euro.
In the "Stop Loss" column, we specify the value at which the order will be automatically closed in case the price of the base currency falls. In the “Take Profit” column, we indicate the value at which the order will be closed to fix our profit. Read more about setting Stop Loss and Take Profit here.
And finally, we press the “Buy” button and wait for the price to reach the level of Take Profit—1.1025 (or the level of Stop Loss—1.0950 in case of an unsuccessful transaction).
After pressing the button, a notification that the trade was placed will appear in the lower window of the trading terminal. Please note that immediately after the transaction is completed, the “Profit” indicator will be negative. This happens because of the spread that we pay to the broker for each trade we place. The size of the spread is set by each broker independently and may vary depending on the specific instrument and the general situation in the market. The spread is not measured in money, but in points and pips. On the average, the spread is 1–2 pips for major currency pairs and 5–6 for exotic ones. A point is the smallest change to the left of the period in the currency price. A pip is the smallest change to the right of the period in the price of a currency pair by one step. Read more about the spread here.
If you see that the quote has changed in your direction, you can always close the trade ahead of schedule. Do not open large trades right away! Even if you were lucky on a demo account, the real market is volatile, and it does not forgive mistakes. After clicking "Buy", you just have to wait, and don’t forget to keep track of the price changes. After the desired levels are reached, feel free to close the trade and reap your profit.
Psychology of Forex trading
We figured out the practical plan of action, now let’s turn to the main psychological aspects of Forex trading. Traders should never neglect psychology in the market. It helps to understand and predict the behavior of competitors and, accordingly, build your own effective trading strategy. Our perception of the market and its fluctuations is formed under the influence of previous experience and personal character traits. Fear, greed, and self-confidence form patterns in the behavior of traders. For effective trading, traders must always control their emotions and assess the situation objectively, not be fooled by cognitive biases, must not fall into panic or euphoria after the transactions. The result of any single transaction taken separately might as well be random. The best strategy is to take each order separately, regardless of previous and subsequent experience.