Detailed and comprehensive guide on how to play Forex for beginners, important terms, popular trading strategies and trading experience to win in this market
Detailed and comprehensive guide on how to play Forex for beginners, important terms, popular trading strategies and trading experience to win in this market
1. Basic Forex and how to play Forex for beginners
Today I will present the most basic information on how to play Forex for beginners.
✅What is the foreign exchange market?
The foreign exchange market (also known as Forex or FX) is a currency exchange market, where banks, financial institutions, and individual traders around the world buy and sell different currencies. The Forex market is the largest and most popular market in the world, with daily trading volume reaching trillions of dollars.
✅How the Forex market works
based on trading between currency pairs. For example, a popular pair is EUR/USD, where EUR is the base currency and USD is the quote currency. When you place an order, you need to decide whether the value of the base currency will increase or decrease compared to the quote currency. If you believe that the value of the base currency will increase, you can place a buy order; conversely, if you believe that the value will decrease, you can place a sell order.
✅Buy Order and Sell Order
In the Forex market, we can execute both buy and sell orders. A buy order is used when you predict that the value of the base currency will increase. A sell order is used when you predict that the value of the base currency will decrease. In Buy and Sell orders, we have order types such as Market, limit, stop… We also need to better understand how to play Forex for beginners using these order types, I will present details in the following section
✅Trading time
How to play forex for beginners is to choose a trading session that suits you to trade. Below are details about trading hours and trading sessions in Forex.
Forex can be executed 24/5 all hours from Monday to Friday every week. Trading hours can be divided into sessions such as the Asian session, the European session and the American session. Each trading session will have different characteristics and price behaviors. Professional traders, instead of trading all day, will only choose the time when the market is most active or patiently wait for the price to reach the desired point before starting to open appropriate positions. To minimize risk, trade when the market is active and the time is right for you
- Example
Suppose you believe that the value between EUR/USD will increase. You place a buy order for EUR/USD with a specific value. After a while, the value of EUR/USD increases as you predicted. You decide to sell EUR/USD at a higher price, and you make a profit from the price difference. However, if the value of EUR/USD decreases, you may suffer losses.
✅View Forex market news
To follow news and events in the Forex market. Please refer to the page FOREX FACTORY
2. Important terms
Below are the terms you can’t miss about how to play Forex for beginners
✅ Pip
A Pip is the basic unit in the price of a currency pair or 0.0001 of the quoted price, in non-JPY currency pairs and Gold. So, when the buy price for the EUR/USD pair increases from 1.14988 to 1.14998, that represents a difference of 1 pip. To better understand Pip, please refer to details about PIP at What is PIP? How to calculate the value of each PIP
✅ Spread
Spread in Forex investment is the difference between the bid (sell price) and ask (buy price) of a currency pair. For example: if the buy price of EUR/USD is 1.13404 and the sell price is 1.13398, then the spread will be 1.13404 – 1.13398 = 0.00006 or 0.6 pip.
✅Lot:
In forex, the concept of “lot” is used to measure the amount of money traded. A lot represents a fixed volume of currency in a transaction. The size of a lot can vary depending on the regulations and standards of each account type on trading platforms.
There are three main types of lots used in forex:
Standard Lot: A standard lot usually represents 100,000 currency units. For example, if you buy 1 standard lot of EUR/USD, you are buying 100,000 US dollars.
Mini Lot: A mini lot usually represents 10,000 currency units. With a mini lot, the currency value will be smaller than a standard lot. For example, if you buy 1 mini lot of EUR/USD, you are buying 10,000 US dollars.
Micro Lot: A micro lot represents 1,000 currency units. With a micro lot, the currency value will be very small. For example, if you buy 1 micro lot of EUR/USD, you are buying 1,000 US dollars.
When you open a position in forex, choosing the lot type will determine the amount of money you invest and the risk level of the transaction. In particular, the amount of money you need to open a position will depend on the lot size you choose and the leverage ratio you use.
✅ Price and Quote
When investing in Forex, traders need to know 2 price concepts: ask price (sell price) and bid price (buy price). Remember that the ask price is the price at which you can buy currency. And the bid price is the price at which you can sell it. For how to play Forex for beginners, you need to clearly understand the Ask and Bid prices for corresponding Buy/Sell orders.
✅ Margin
Margin is the amount of money held in a trading account when opening a trade. However, small traders often lack the margin required to trade with a volume high enough to earn good profits, so many Forex brokers offer their clients the right to use leverage.
✅ Leverage
The concept of leverage is mandatory for beginner forex traders. Leverage is capital provided by a forex broker to increase the trading volume that their clients can execute. The higher the leverage, the higher the risk, use a small to moderate leverage level for how to play Forex for beginners.
Example:
The face value of a contract or lot is 100,000 base currency units. In the case of EUR/USD, it would be 100,000 euros. If you use a leverage ratio of 1:10 and have 1,000 euros in your trading account, you can trade a currency pair with a position size of 10,000 dollars. If the transaction is successful, leverage will maximize your profits by a factor of 10. However, remember that leverage also multiplies your losses to the same extent. Therefore, be careful when using leverage,
3. Advantages and disadvantages when playing Forex.
Below are the advantages and disadvantages of how to play Forex for beginners
✅Advantages:
- High liquidity: The forex market is the largest and most popular market in the world, with daily trading volume reaching trillions of dollars. Therefore, you can easily buy and sell currency pairs without encountering liquidity difficulties.
- Flexibility: Forex operates 24/5 from Monday to Friday, allowing you to trade at any time of the day, depending on your flexibility and free time.
- High profit potential: With the use of leverage, you can earn large profits from small fluctuations in currency pair prices. However, using leverage can also increase the level of risk.
✅Disadvantages:
- High risk: Forex trading carries a high level of risk. Price fluctuations can occur quickly and unpredictably, leading to the possibility of rapid losses and the loss of all invested capital.
- Dependence on news and economic and political volatility: The forex market is sensitive to news and volatility in political and economic events. This can create instability and unpredictability, creating significant changes in currency pair prices.
- Complex for beginners: This field requires you to grasp knowledge of technical analysis, risk management and other factors necessary to achieve success. For how to play Forex for beginners, it takes time and patience to grasp the important aspects.
4. What to prepare before starting Forex trading
How to play Forex for beginners is to follow the steps below, choose the right exchange, how to open an account and the software to use.
✅Choose a reputable and suitable trading platform
First and most importantly, you need to choose a reputable and reliable forex trading platform for how to play Forex for beginners. This ensures that you have a safe and fair trading environment. To choose a suitable trading platform, you should consider factors such as operating license, regulatory compliance, trading incentives, transaction fees and customer service.
✅ Open a trading account and deposit money into the account
After choosing a trading platform, you need to open a trading account on the platform. Usually, you will have to provide personal information and verification documents such as your ID card or passport or driver’s license to complete the registration process. After your account is confirmed, you can deposit money into your account through payment methods accepted by the trading platform.
How to play Forex for beginners is after opening a platform account, try with a Demo account first. After you are familiar with how to play and use the software, deposit a small amount of money into a real account.
✅Install trading software
MT4 and MT5 (MetaTrader 4 and MetaTrader 5) are two popular trading software in forex trading developed by MetaQuotes. Here is an introduction to these two platforms:
MetaTrader 4 (MT4): MT4 is one of the most popular forex and CFDs trading platforms on the market. It provides a range of tools and features to help users perform automated trading, technical analysis, and trading account management. MT4 supports many types of charts and technical indicators, allowing users to customize their own indicators and trading systems. MT4 is also supported on many devices, including personal computers, Mac computers, and mobile devices.
MetaTrader 5 (MT5): MT5 is an upgraded version of MT4, it provides more advanced features and tools for trading users. MT5 not only supports forex and CFDs trading, but also allows trading other financial instruments such as stocks, commodities and ETFs. MT5 provides a range of advanced charts, technical indicators, and deeper analysis tools for users to research and perform complex transactions. In addition, MT5 also supports backtesting trading strategies, copy trading, and distributing trading signals.
The main difference between MT4 and MT5 is that MT5 provides more extensive features and supports more types of trading assets than MT4. However, MT4 is still widely used and preferred in the forex trading community.
Both of these platforms can be downloaded from the websites of reputable Forex brokers or from the App Store or Google Play Store on mobile devices.
✅Important notes when choosing currency pairs to trade.
An important note on how to play Forex for beginners is to choose a currency pair to trade that suits your playing style, below are suggestions for some commonly traded currency pairs
Choose popular currency pairs: Start with popular currency pairs such as EUR/USD (Euro vs. USD), GBP/USD (British Pound vs. USD), USD/JPY (USD vs. Japanese Yen) Or XAU/USD (Gold vs. USD). These currency pairs usually have high liquidity and low spreads, making them easy to track and analyze.
Consider volatility: Some currency pairs tend to be more volatile than others. If you like trading large fluctuations, choose pairs with high volatility.
Research currency pairs: Before investing, you should research the economic and political factors that affect the value of the currency pair you are interested in. Economic news and fluctuations in monetary policy can have a significant impact on prices.
5. Basic trading strategy on how to play forex for beginners
✅Research and learn:
Before starting forex trading, take the time to learn and research basic concepts such as technical analysis, fundamental analysis, technical indicators and price charts. Master the basics and build your knowledge before actually investing.
✅Trading strategy:
Identify a trading strategy that suits you based on technical and fundamental analysis. This may include chart analysis methods, moving averages, support and resistance, MACD, RSI and many other indicators. Ensure careful adherence and control of risk management in your trading strategy. Use a simple strategy but practice it repeatedly, which is how to play Forex for beginners to bring the highest efficiency.
✅Risk management:
The most important thing in forex investment is risk management. Set the maximum profit and loss levels you are willing to accept before opening a position. Use stop loss and take profit to automatically exit the position if the market goes against your prediction. Set the appropriate lot size for your finances and risk level.
✅Learn about psychological management
The forex market can be volatile and quite unstable, so psychological management is very important. Control your emotions and avoid making decisions based on anger or fear. Stick to your trading strategy and never trade at an excessive risk or beyond your financial capabilities.
✅Learn from experience:
For how to play Forex for beginners, record, analyze and learn from every trade you make. Review the buy orders and errors to adjust your strategy and improve your trading skills over time.
✅Example of a trading strategy
How to play Forex for beginners is to define a trading strategy in 6 steps as follows
Identify the trend: Start by identifying the overall trend in the market using higher charts such as daily or weekly charts. Suppose you identify an uptrend.
Moving Average Cross: Use two moving averages, such as the 50-day and 200-day moving averages, to determine entry and exit points. When the shorter moving average (e.g. 50 days) crosses above the longer moving average (e.g. 200 days), it creates a buy signal, indicating a potential uptrend. Conversely, when the short moving average crosses below the long moving average, it creates a sell signal, indicating a potential downtrend.
Entry point: After receiving a buy signal from the moving average cross, you can open a buy position (long position). For example, if the 50-day moving average crosses above the 200-day moving average, you can open a buy position when the price retraces near the moving average or breaks above the previous high.
Set stop-loss: Place a stop-loss order below the nearest high bottom or a certain percentage (e.g. 2-5%) below your entry point. Or below the moving averages.
Take-profit target: Determine a take-profit target. You can consider the previous resistance level, Fibonacci retracement or use a risk-to-reward ratio (e.g. 1:2 or 1:3).
Exit point: When the price reaches the take-profit target, you exit the trade and lock in profits. If the price reaches the stop-loss level, you should also exit the trade to limit potential losses.
6. Passive Forex trading
Below are some ways to play Forex for beginners with passive investment
✅Use trading signals
You can use a trading signal service to receive buy and sell signals from professional analysts or automated systems. You just need to register and then copy the recommended trades to your account. This allows you to trade without spending time and market analysis knowledge.</
✅Copy Trading strategy
Another passive way is to use Copy Trading technology, in which you copy trades from successful traders. You can find and copy traders with good results on Copy Trading platforms, this is also one of the ways to play Forex for beginners is to follow the good ones.
✅Use trading robots
Trading robots, also known as Expert Advisors (EAs), are automated programs that execute Forex trades based on pre-programmed algorithms and rules. You can download and install EAs on the MT4 or MT5 trading platform and adjust the settings to your personal needs. Trading robots help you execute trades without continuous intervention or monitoring. I will focus on many articles to guide how to play Forex for beginners to use Robots for trading automation.
✅Invest in funds/ETFs
Another passive Forex trading method is to invest in funds or ETFs (Exchange Traded Funds), in which fund managers will manage the account and execute trades for you. You just need to invest in the fund or buy fund shares to continue passively trading.
7. 10 tips on how to play Forex for beginners
How to play forex for beginners is a complex process, but it can become successful if you follow the principles and acquire the necessary knowledge. Here are 10 tips for beginners like you:
- Deepen knowledge: How to play Forex for beginners is to first invest time and effort to understand the basic concepts of Forex, currency pairs, markets and important trading tools such as the principles of technical analysis and fundamental analysis.
- Develop a trading plan: Develop a detailed trading plan and stick to it. This includes setting profit targets and risk ratios, deciding when to open and close trades and creating clear rules for account management.
- Start with a DEMO account: Before starting real trading, use a demo account to test strategies and familiarize yourself with your trading platform. This will help you familiarize yourself with the trading process and avoid the risk of real money losses in the initial stage.
- Risk management: Risk is an integral part of Forex trading. Make sure you understand and apply risk management rules such as setting stop-loss, not placing too much capital in a trade and not betting too much with an order.
- Manage trading psychology: Work on controlling emotions when trading. Don’t let fear or greed influence your decisions. Always be calm, patient and control your winning and losing mindset.
- Technical analysis: Learn how to use technical analysis tools such as charts, price patterns, moving averages and indicators. Technical analysis will help you identify trends, support and resistance, and find entry and exit points.
- Follow the economic calendar: Follow economic news and events that impact the Forex market. This news can cause large fluctuations and create opportunities or risks for your trading.
- Time management: Determine the time you can spend trading and researching the market. Don’t trade when you don’t have enough time or focus.
- Learn from trading experience: Every trade is a learning opportunity. Record and analyze your previous trades to better understand errors and successes that can improve your strategy.
- Patience and perseverance: Forex trading is a long journey and there is no quick success. Be patient and persistent in learning, improving and developing your trading skills over time. Be persistent, practice and be serious about it, that is how to play Forex for beginners to achieve good results in this market.
“Be confident and patient, success will come to you!”
