How to Start Forex Trading?
In this article
Your quick guide to Forex trading in South Africa, answering the big question on every new trader’s mind: How to start Forex trading?
The Foreign Exchange market, known as the Forex or FX market, is the most liquid market for the exchange of global currencies. It consists of $5.2 trillion in daily volume. Before you can learn how to start Forex trading, you need to understand the background, how did it evolve into the market we know today?
Forex trading was not always widely accessible to retail traders. Institutional trading and the wealthy took advantage of the lucrative form of trading. This all changed as the industry moved forward with the rapid growth of the internet and technology. At present, anyone with an internet connection and a compatible device, desktop, laptop, tablet or mobile, can access the markets via their broker of choice.
There are some key elements you as a trader need to understand before deciding to start trading Forex.
How Does the Forex Market Work?
The Forex market provides you with 24/5 access to currency pairs around the globe. It is incredibly liquid and, in most cases, volatile, depending on which currency pair you decide to monitor and trade. You, as an FX trader, have the opportunity to analyse the market and make an educated decision whether the price of a currency will increase or decline in value. You then buy or sell one currency against another.
The net result is either a profit or a loss. We go into more depth in our how does Forex trading work article.
A lot of newcomers have the misconception as to how the mechanics of the Forex market works. A profitable trader must do their part in regard to educating themselves. Forex trading is not a “get rich” quick opportunity. People are under the impression that they should try and deposit as little as possible to try to make as much as possible – this could not be further from the truth! More on this later in the article. Are you educated on what margin is in Forex?
Forex Trading Education
Proper Forex trading education is the alpha and omega to the success of any trader. Just like you need to learn and practise how to do any new task; learning to drive a car, you need to apply the same level of commitment to trading Forex. Who and where you learn from also plays a significant role. Not all sources are rate equally.
You should look at the following educating categories:
- General industry
- Terms and phrases
- Broker reviews
- Trading strategies
- Risk management
In the opening section of this article, we discuss a general rundown and history of the Forex industry – an excellent starting point for any trader looking to familiarise themselves with the industry. Once you feel comfortable that you have a basic understanding, move on to terms and phrases. This sequence will ensure a quicker learning curve.
Terms and Phrases
Every industry has terms and phrases unique to it. If you do not understand what they mean, or what their purpose is, you might struggle as you move down the list trying to grasp the Forex markets as a whole.
Commonly used terms:
These are arguably the most frequently used terms, used while learning, understanding and implementing. Without the basic knowledge of these, you simply cannot make sense of many of the things you would need to learn. Here is a list of the glossary of terms, understanding the jargon used in the Forex market.
No doubt that you can find Forex broker reviews in abundance on the internet. It is important to note that not all should be rated equally. Would you take advice from a plumber when you are looking to buy a new car? I highly doubt it. Most of these review sites’ motive behind rating brokers are purely for financial gain.
What to look out for when searching for reviews? Make sure the website is not a “pop up site” looking to make a quick buck. Make sure the reviews are transparent, covering the good and the bad. No broker is perfect. Believe it or not, that is perfectly fine. Your goal is to open an account with the broker that closely meets your needs and values. Brokers with proper regulation is an excellent place to start.
Yes, every legitimate broker needs to abide by industry standards. We base all our Forex broker reviews on these standards.
Forex trading strategies are the bread and butter of a successful trader, which forms part of your trading plan. A trading plan consists of many different elements.
Are you a technical, fundamental or sentiment trader? In simple terms; do you trade strictly based on price or do you base your decisions on news and economic events. Do you take the overall sentiment of traders and their trading activity into account? There is no right or wrong way to go about this. These methods come down to preference and skillset.
Within these methods of trading, time plays a significant role. We get different types of traders based on the time they are willing to hold a trade.
Depending on which of these you decide to use, you would develop your trading strategy and rules of entry. A popular and our favourite is called price action trading. A price action trader will then develop and adjust his strategy to meet his requirements, such as risk appetite and time he is willing to spend in front of his charts.
It is worth noting that there are different Forex market hours, based on the market open of each country.
Risk management can either make or break a trader. As a trader, you have specific goals, goals towards profits, as well as how much you are willing to risk to achieve those goals – this is called risk management. A common goal is to gain twice as much as what you risk; this is stated as a 2:1 reward to risk ratio.
Two terms mentioned previously, margin and leverage, play an essential role.
Margin is how much a trader needs to put aside as collateral to open and maintain a position.
Leverage is a type of loan that your broker fronts, allowing you to open positions up to 500 times greater than your margin requirement.
Do not be a leverage chaser! Some traders assume that they should try and deposit as little as possible, broker minimum deposit, to try and make as much profit as possible. This assumption will cause you to fail miserably in the long run! Money begets money. In simple terms, money makes money, make your money work for you. What you put in is what you get out.
Screentime refers to experience. The more time you spend looking at your charts, the better you will get. Each currency pair has its separate characteristics. Do not rush screentime. It will take time, and will be well worth it.
Trading with a demo account does not mean you will gain experience. We are referring to actual live trading. Risking virtual funds does not have the same emotions and decision making.
Final Thoughts on How to Start Forex Trading
When you do decide to start trading Forex in South Africa, or anywhere in the world, you should do your research on the industry and your broker of choice. This is all about the destination, not necessarily the journey. How you prepare yourself for the journey in regards to Forex trading education will determine your success or failure. Can Forex trading in South Africa change your financial situation?
Make sure you provide yourself with the best possible start! We are here to help.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst