Forex trading involves buying and selling currency with the aim of making a profit. It is one of the most popular forms of trading in the world.
As of late 2024, it’s estimated there are over 10.5 million forex traders in the world, and this number continues to grow daily.
In forex trading course for beginners, we take a detailed look at all aspects of trading with an emphasis on helping beginners with little money.
What is forex trading?
Forex trading, also known as foreign exchange trading or currency trading, involves the buying and selling of currencies on the foreign exchange market.
It is the largest and most liquid financial market in the world, with an estimated US $7.5 trillion traded daily.
Forex trading allows individuals, institutions, and businesses to speculate on the value of one currency against another, and profit from fluctuations in exchange rates.
Most people trade forex using CFDs (Contracts for Difference.)
How does forex trading work?
The forex market is not like a conventional stock exchange.
Rather, it consists of a network of banks, financial institutions, brokers, and individual traders, all interconnected through electronic trading platforms.
It operates 24-hours a day, five days a week, although given the different world time zones, it’s possible to trade forex almost 24/7. You can find out the best times to trade here.
Retail forex trading plays only a small part in the overall forex market.
It is estimated that retail traders represent less than 5% of the overall forex market.
Time zones for forex trading
There are four major forex trading sessions, categorised by their time zones:
- Sydney Session (Sydney Time – GMT+11): Often referred to as the ‘Asia-Pacific session,’ this session opens the forex trading day. While liquidity might be lower compared to other sessions, the session can be volatile due to economic data releases from China, Japan, and Australia.
- Tokyo Session (Tokyo Time – GMT+9): This session overlaps with the latter part of the Sydney session. It is a major hub for Asian forex activity, with significant participation from Japanese institutional investors.
- London Session (London Time – GMT): The London session, often considered the most active and liquid session, takes over from Tokyo. This session overlaps with the closing hours of the New York session, creating a period of particularly high trading volume due to the participation of European and American financial institutions. It is also known as the European session.
- New York Session (New York Time – GMT-4): The New York session picks up the baton from London. It’s another major hub for forex activity, with significant participation from American banks, hedge funds, and retail traders.
How to start forex trading for beginners
There are a few basic steps involved when you first start forex trading.
In a nutshell, these are the steps involved in forex trading for beginners:
- Open a trading account: Open up a forex trading account with your chosen broker – here’s where you can open an account
- Choose your charting software: Traders use charts as the basis for making forex buying and selling decisions. Here at MarketMates we use and recommend TradingView, which you will automatically have access to when you open an account with us.
- Write your trading plan: Write a trading plan with details of your trading strategy, and how you’re going to trade
- Choose your currency: Research to find out the fx currency pair or pairs you wish to trade
- Place your trade: Following your trading plan, place a forex trade. This will include setting your stop loss and exit from the trade
- Monitor your position: Keep an eye on your trade and change your stop loss position and take profit levels if necessary
- Exit your trade: Exit your trade with either a profit or a loss
- Reflect and improve: Reflect on your trade with an eye to improvement
How to make money with forex trading for beginners
When placing trades on the forex market, you are trading the strength of one currency against another.
For example, if you go long and ‘buy’ USD/GBP, you are speculating that the US dollar price will increase, relative to the price of the British pound.
If you go short and ‘sell’ USD/JPY, you are speculating that the US dollar will weaken in comparison to the Japanese yen.
Forex currency pairs
In forex trading, currencies are traded in pairs, such as EUR/USD (Euro/US Dollar) or GBP/JPY (British Pound/Japanese Yen).
Each currency pair represents the exchange rate between the two currencies.
The first currency in the pair is called the base currency, while the second currency is known as the quote currency.
Majors, minors and exotics
It’s possible to trade more than 300 currency pairs. However, currency pairs are divided into three categories – majors, minors and exotics.
Majors
Majors refer to the most traded currency pairs in the forex market. They are the best forex pairs for beginners to start trading.
These pairs involve currencies from the world’s largest economies, and they enjoy high liquidity and trading volume.
The majors include:
- EUR/USD (Euro/US Dollar): This pair represents the exchange rate between the Eurozone’s single currency, the Euro, and the United States Dollar, the world’s primary reserve currency
- USD/JPY (US Dollar/Japanese Yen): This pair reflects the exchange rate between the US Dollar and the Japanese Yen, two of the most traded currencies in the world
- GBP/USD (British Pound/US Dollar): Known as ‘Cable,’ this pair represents the exchange rate between the British Pound and the US Dollar
- USD/CHF (US Dollar/Swiss Franc): This pair reflects the exchange rate between the US Dollar and the Swiss Franc, a traditional safe-haven currency
- AUD/USD (Australian Dollar/US Dollar): This pair represents the exchange rate between the Australian Dollar and the US Dollar, often influenced by commodity prices and global economic trends
- USD/CAD (US Dollar/Canadian Dollar): Known as the ‘Loonie,’ this pair reflects the exchange rate between the US Dollar and the Canadian Dollar, closely tied to oil prices and economic conditions in both countries
Minors (Cross Currency Pairs)
Minors, also known as cross-currency pairs, do not include the US Dollar. Instead, they involve two other major currencies traded against each other. Some examples of minors include:
- EUR/GBP (Euro/British Pound): This pair represents the exchange rate between the Euro and the British Pound
- EUR/AUD (Euro/Australian Dollar): Reflects the exchange rate between the Euro and the Australian Dollar
- GBP/JPY (British Pound/Japanese Yen): Represents the exchange rate between the British Pound and the Japanese Yen
- AUD/JPY (Australian Dollar/Japanese Yen): Reflects the exchange rate between the Australian Dollar and the Japanese Yen
Exotics
Exotics refer to currency pairs that involve one major currency and one currency from a smaller or emerging market economy.
We don’t recommend that beginners start by trading exotic currency pairs – stick to the majors when you’re first learning how to trade.
These pairs are characterised by lower liquidity and higher volatility compared to majors and minors. This is the reason we don’t recommend them for beginner traders. Examples of exotic pairs include:
- USD/TRY (US Dollar/Turkish Lira): Represents the exchange rate between the US Dollar and the Turkish Lira
- USD/ZAR (US Dollar/South African Rand): Reflects the exchange rate between the US Dollar and the South African Rand
- EUR/TRY (Euro/Turkish Lira): Represents the exchange rate between the Euro and the Turkish Lira
- GBP/ZAR (British Pound/South African Rand): Reflects the exchange rate between the British Pound and the South African Rand
Understanding the characteristics and dynamics of majors, minors, and exotics is essential for all beginner forex traders.
Currency pair correlation
There are complex relationships between currencies that you will need to become familiar with.
These relationships are known as correlations.
For example, see the relationship between AUD/USD, EUR/USD and GBP/USD currency pairs below. These pairs often exhibit a positive correlation, meaning that when the EUR/USD pair strengthens (increases in value), the AUD/USD and GBP/USD pairs tends to strengthen as well.
Conversely, when the EUR/USD pair weakens (decreases in value), the GBP/USD pair tends to weaken too.
There are also some currency pairs that exhibit negative correlation too. These pairs tend to move in opposite directions.
These are some common negatively correlated currency pairs and how they relate:
- EUR/USD vs. USD/CHF: The Euro (EUR) and the US Dollar (USD) are major reserve currencies, and their values often move in opposition. When the USD strengthens against other currencies (EUR/USD weakens), the Swiss Franc (CHF) often tends to appreciate against the USD (USD/CHF strengthens)
- GBP/USD vs. USD/CHF: Similar to EUR/USD, the British Pound (GBP) also has a negative correlation with USD/CHF. When the USD strengthens against the Pound (GBP/USD weakens), investors might seek the safety of the CHF (USD/CHF strengthens)
- USD/JPY vs. AUD/JPY: The Japanese Yen (JPY) is another safe-haven currency. When the USD weakens against other currencies (like the Australian Dollar – AUD/USD weakens), it often strengthens against the JPY (USD/JPY strengthens)
The diagram below shows how negatively correlated pairs look when compared on a trading chart:
What are bid and ask prices in fx trading?
The bid price is the price at which the market is willing to buy a currency pair, while the ask price is the price at which the market is willing to sell the pair.
The difference between the bid and ask prices is known as the spread, and it represents the transaction cost of trading. It is measured in pips.
However, there are other costs associated with trading too, which we explore in more detail later.
What is a pip?
In the world of forex trading, a pip (short for percentage in point) is the smallest unit of price movement for a currency pair.
It’s a standardised way to measure how much a currency’s value has changed against another currency.
Here’s how pips work:
- Forex quotes: Most currency pairs are quoted with four decimal places. For example, the EUR/USD quote might be 1.2345
- Pip value: One pip typically represents the last decimal place (0.0001) of the quoted price. In the EUR/USD example above, a one-pip movement would be from 1.2345 to 1.2346 (upward movement) or 1.2345 to 1.2344 (downward movement)
- Exceptions: Some currency pairs, particularly those involving the Japanese yen (JPY), are quoted with only two decimal places. For these pairs, a pip equals 0.01 (one cent)
Why pips matter
Pips are crucial for forex traders because they allow for precise measurement of profits and losses.
Since forex trading often involves buying or selling large amounts of currency, even small price movements can translate into significant gains or losses.
Pips are crucial for calculating profits and losses, determining stop-loss and take-profit levels, and assessing the cost of spreads and commissions in forex trading.
What is leverage and margin in forex trading?
In forex trading, leverage allows you to control a much larger position of a currency pair than your actual deposit.
It’s essentially a loan provided by your forex broker that magnifies your potential profits (and losses) based on the leverage ratio.
Here’s how leverage works:
- Margin: When you place a trade using leverage, you only need to put up a small portion of the total trade value. This is known as the margin. The remaining amount is borrowed from the broker.
- Leverage ratio: This ratio expresses the multiplier applied to your deposit. For example, a 100:1 leverage ratio means that for every $1 you deposit, you can control a trade value of $100 ($1 x 100).
For example:
Imagine you have a $1,000 deposit and you want to buy the EUR/USD currency pair. You decide to trade with a leverage of 50:1. This means:
Margin required: $1,000 (deposit) / 50 (leverage) = $20
Trade size: $20 (margin) x 50 (leverage) = $1,000
Therefore, with just a $20 deposit, you’re essentially controlling a $1,000 position in the EUR/USD pair.
Leverage can be a valuable tool, but it comes with significant risks, because it magnifies not only your potential profits, but your losses too.
Using stop-loss orders is crucial when trading with leverage.
These orders automatically close your position when the price reaches a predetermined level, limiting potential losses.
Forex trading strategies for beginners
There’s many different ways to trade forex. The method you choose is known as your trading strategy.
Different strategies are used depending on the timeframe you wish to trade, the time you have available, and also your trading psychology.
Here’s some of the most common forex trading strategies for beginners who are just starting to trade:
- Day trading: Forex day traders enter and exit trades on a daily basis, hoping to predict hourly market price movements. They aim to avoid overnight holding costs. This approach is ideal for new traders who prefer shorter-term trading, or who are beginners with little money, as there are no overnight holding costs involved.
- Swing trading: Swing traders hold positions for several days, aiming to buy at ‘swing lows’ and sell at ‘swing highs,’ or vice versa for short positions. This method requires less time for market trend analysis compared to others, but incurs overnight holding costs and may be subject to gapping. This means there’s a significant difference between the closing price and the opening price at the next trading session.
- Position trading: Position traders hold positions over longer periods of time, disregarding short-term price fluctuations. This strategy suits traders who take a longer-term view and concentrate on market fundamentals rather than technical analysis.
- Scalping: This strategy involves making multiple short-term trades to capitalise on small price movements. Although I mention it here, it’s not a strategy suitable for beginners. It’s more for traders who can dedicate a significant amount of time to trading, and focus heavily on technical analysis and very quick trading with little room for hesistation for error.
Technical analysis for beginners
Technical analysis is a method used by forex traders to evaluate and forecast future price movements.
It is based on the belief that past price movements and trading patterns can provide valuable insights into future price direction.
Smart forex traders use these recognisable patterns to determine whether they will take long or short positions.
- a long position is when you buy an asset and hope to sell it later for a higher price.
- a short position is when you sell an asset and hope to buy it back later for a lower price. It is the direct opposite of trading long.
What does technical analysis involve?
Technical analysis involves learning to ‘read’ trading charts.
This means learning to recognise certain chart patterns that repeat themselves over and over again, no matter what asset you are trading.
Technical analysis also involves using indicators to show different aspects of price movement more clearly.
Elements of technical analysis include:
- Price patterns: these include looking at price trends, support and resistance levels, and candlestick patterns to predict the next move in price action
- Indicators: These are mathematical formulas that are displayed as lines or patterns on a basic price chart. These indicators give you more detail about aspects of price movement. They include aspects like averages, volatility and momentum
- Market psychology: Technical analysis also involves looking at candlestick patterns to ascertain current market psychology, for example, whether prices are trending up or down
What are price trends?
A price trend refers to the general direction in which the price of an asset moves.
Price action can only move one of three ways: up, down, or sideways.
- Uptrend: An uptrend occurs when the price of an asset is consistently making higher highs and higher lows. In other words, the overall movement of the price is upward or bullish. Forex traders look for opportunities to buy during uptrends, expecting the price to continue rising so they can sell at a higher price, and so make a profit on their trade
- Downtrend: A downtrend occurs when the price of an asset is consistently making lower highs and lower lows over time. In this scenario, the overall movement of the price is downward or bearish. Traders look for opportunities to sell short during downtrends, anticipating further price reductions. Short selling involves making a profit when the price of an asset declines
- Sideways or range-bound trends: A sideways or range-bound trend occurs when the price of an asset moves within a relatively narrow price range. This is known as a period of consolidation. The overall movement of the price is horizontal, and there is no clear direction up or down. Forex traders often choose to stay on the sidelines during periods of consolidation, waiting for prices to start moving again, which is known as a breakout from a sideways trend
What are the costs associated with forex trading?
Each time you make a forex trade, you will encounter various costs. These are ‘the price of doing business.’
Forex trading costs include:
- Spread: The spread is the difference between the bid price (the price at which you can sell a currency pair) and the ask price (the price at which you can buy a currency pair). It represents the broker’s fee for executing your trades, and is measured in pips
- Commission: Some brokers charge a commission fee for each trade, in addition to the spread. This commission can be a fixed amount per trade, or a percentage of the trade size
- Swap or rollover fees: Swap or rollover fees are charged when you hold a position overnight. These fees are based on the interest rate differential between the two currencies in the pair you are trading, and can either be positive or negative, depending on the direction of your trade and the prevailing interest rates
- Currency conversion costs: If you are trading forex pairs that are not denominated in your account’s base currency, you may incur currency conversion costs when depositing or withdrawing funds from your trading account.
- Platform fees: Some brokers may charge fees for using their trading platforms or accessing certain features or tools
- Inactivity fees: Inactivity fees are charged by some brokers if you do not place any trades within a specified period
Understanding these costs is essential for forex traders to accurately assess the profitability of their trades, and select the most cost-effective trading strategies and brokers.
What is Subscription-Based Trading (SBT)?
Rather than charging spread, markup and conversion fees, here at MarketMates we offer a different model we’ve called subscription-based trading.
This means for a small monthly fee, you have unlimited trading per month, with no additional charges per trade.
We also have a free plan so you can trade with spreads from 0.0 and no markups at all up to $1 million a month for free!
Final thoughts for about this trading course for beginners
Forex trading is like a busy shopping centre, where individuals, companies, and big institutions trade currencies.
It’s the biggest marketplace in the world, with trillions of dollars of money changing hands every day.
To become a successful trader, you need to understand how the forex market works.
There are many different trading strategies for beginners, ranging from day trading to trend and breakout trading.
The style of trading you undertake will depend largely on your personality, the time you have available, and what suits your lifestyle the best.
At the heart of forex trading is currency pairs, like the British Pound/Japanese Yen. Knowing how these pairs interact is one of the keys to success.
Till next time, good luck and happy trading!
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Glossary
Here’s an explanation of some common FX trading words:
ASX – the Australian Securities Exchange, Australia’s stock market
BC – base currency, the first currency in a pair
Brokerage fee – a fee you pay to a stock broker or brokerage site each time you use their platform to buy or sell an asset
Bear market – describes a market environment in which the majority of prices are falling
Bull market – an optimistic market in which most prices are rising
Cable – a slang market term for one of the most popular currency pairs – GBP/USD
Carry trade: A strategy where a trader borrows in a currency with a low interest rate and invests in a currency with a higher interest rate to profit from the interest rate difference
CC – counter currency, the second currency in a pair
CFD – a ‘Contract for Difference,’ which is a type of derivative financial product that is traded based on the value of an underlying asset such as a currency pair or company share or cyptocurrency
Correlation: The statistical relationship between two assets, for example two currency pairs, indicating how they move in relation to each other – either positively, negatively, or not at all
Cryptocurrency – a form of virtual currency which only exists in the cyber world. Cryptocurrencies can also be traded online through CFDs in a similar way to standard FX trading
CPI – Consumer Price Index, which reflects the inflation rate of a particular country, and is a very important market indicator in FX trading
Day trading – a trading strategy that involves buying and selling shares in one day, and closing all positions before the end of the trading day
Derivative – a financial product that is based on the underlying value of another asset. CFDs, options and futures are all examples of derivatives
Forex brokerage: A company or platform that provides access to the forex market, facilitating the buying and selling of currencies for traders
Forex or FX trading – foreign exchange trading, converting one currency to another in order to profit from price changes
Futures contract – a contract to buy or sell an asset at a specified future date for a specified price
Greenback – a FX slang term for the American dollar, based on the colour of American $1 notes
Hedge – an investment strategy designed to offset or reduce your exposure to risk. It is related to the phrase ‘hedging your bets’
Leverage – using ‘borrowed’ money to invest so you can trade a larger position with less initial outlay. Most FX brokers offer leverage starting from 5% up to 60% or more
Loonie – the slang FX market term for the Canadian dollar (because Canadian dollar coins formerly pictured a loon on them)
Margin: The amount of money required to open and maintain a leveraged position, often expressed as a percentage of the total trade size
OTC – ‘over the counter’ – which describes the global forex market method of operation, where there is no centralised exchange, but rather trades take place directly between two parties through an electronic network connecting traders all over the world
Share trading – buying and selling shares in public companies through a stock exchange
Short trading: Selling an asset with the intention of buying it back later at a lower price to profit from a reduction in the price
S/R – support/resistance. This describes specific price levels using technical analysis on a trading chart. Support is a level below the current price which has previously acted as a floor or lowest selling point. Resistance is a price level above which the price has previously shown reluctance to climb
Slippage – The difference between the expected price of a trade and the actual price at which it is executed,with the difference often due to market volatility or delays
SL Order – Stop loss order – a type of trading order which automatically kicks in at a certain price and closes a trade to prevent catastrophic loss
Sterling – another name for the British pound
Swap fees: Costs incurred when holding a position overnight, related to the interest rate difference between two currencies in a forex pair
Take a Position – this describes the action of opening a trade – you are said to ‘take a position’ when you choose to open a trade
TP Order – Take profit order – a price order which is set which automatically closes a position to take the profit made on that trade
Volatility – a measure of how much the value of a particular asset fluctuates on a regular basis
Sources
Marketmates uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial guidelines to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
- Dr Van K. Tharp – Super Trader: Make consistent profits in good and bad markets. https://www.amazon.com.au/Super-Trader-Expanded-Van-Tharp
- Sam Eder – The Consistent Trader. https://www.amazon.com.au/Consistent-Trader-Winning-Trading-Psychology/
- Investopedia – Commodities Trading: An Overview. https://www.investopedia.com/investing/commodities-trading-overview/
