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How to Trade Forex

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The idea of learning how to trade forex to enjoy a financially independent lifestyle may have sparked your imagination. Aided by the revolutionary rise of retail forex trading via online brokers during the past decade, the forex market has now opened up to just about anyone with an internet-connected device and a small deposit to use as margin. 

Learning the basic mechanics of how to trade forex seems relatively easy and should not present a problem if you’re already familiar with operating a computer. Still, the key to running a long-term forex trading business is consistent profitability since few people will tolerate losing money while still investing valuable time in the process.

How to Trade Forex:

  • Step 1: Get a Device Connected to the Internet
  • Step 2: Find an Online Forex Broker
  • Step 3: Open an Account
  • Step 4: Fund the Account
  • Step 5: Download a Forex Trading Platform
  • Step 6: Enter Your First Trade

Step 1: Get a Device Connected to the Internet

To start trading forex via an online broker, you will need an electronic device connected to the internet. This could be a relatively modern desktop or laptop computer, a mobile phone or a tablet. Windows and Android are probably the best operating systems to have for forex trading, but many trading platforms are also available for Mac and iOS devices. 

Examples of internet-connected devices you can use to trade forex. Source: NewZoogle.

Step 2: Find an Online Forex Broker

Many online brokers offer forex trading, so select among the available options. As an example of what to look for in a good broker, you can check out Benzinga’s FOREX.com review.

Screenshot of FOREX.com’s homepage. Source: FOREX.com.

Step 3: Open an Account

Most brokers make opening an account fairly easy. Visit the website and look for that option once you’ve decided on a specific broker. You’ll need to confirm that you’re a real person and that you do not intend to engage in money laundering activities.  

Account opening page at FOREX.com’s website. Source: FOREX.com.

Step 4: Fund the Account

When you want to trade forex with real money, you need to deposit funds into an account with a broker to use as margin. This amount can then typically be leveraged by a ratio that depends on where you and the broker are both located. This is due to regional regulations. Brokers typically offer several different account funding methods, so choose the one that’s most convenient for you. Keep in mind that if you ever withdraw funds from your trading margin account, you’ll generally need to do so via the same method. 

Account funding options at FOREX.com. Source: FOREX.com.

Step 5: Download a Forex Trading Platform

Many different forex platforms exist to facilitate online trading. Most online brokers support the very popular MetaTrader 4 and/or 5 platforms from MetaQuotes that you can use online or download for free at the developer’s website and then install on your computer or mobile device so you can trade forex. Some brokers also have proprietary trading platforms you can download from their websites or use online. Either way, obtaining and using these platforms is generally quite simple using instructions your chosen broker will provide. 

Screenshot of the MetaTrader5 trading platform. Source: MetaQuotes

Step 6: Enter Your First Trade

Before you make a live trade, you will probably want to take some time to learn how to enter and exit trades properly using your online trading platform with a demo account before you make a real transaction. This can help you avoid costly mistakes. Once you feel confident in your ability to use the platform, you’re ready to enter your first trade. 

Order entry box of the MetaTrader5 trading platform. Source: MetaQuotes

Choosing the best online broker to trade forex via does require some upfront research to determine which is the most suitable for your experience level and trading needs. Benzinga’s recommended forex brokers appear in the comparison table below.

Commissions
Spreads start as low as $1 But vary based on trading volume
Account Min
$250
Get started securely through FOREX.com’s website
Commissions
Spreads start as low as $1 But vary based on trading volume
Account Min
$250
1 Minute Review

FOREX.com is a one-stop-shop for forex traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for brokers searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels. While FOREX.com is impressive, remember that it isn’t a standard broker. You can’t invest in the stock or bond market through your FOREX.com and you cannot open an account with tax advantages. The confusing pricing and margin structures may also be overwhelming for new forex traders.

Best For
  • Forex traders located in the United States
  • MetaTrader 4 users
  • Beginner forex traders
  • Active forex traders
Pros
  • Impressive, easy-to-navigate platform
  • Wide range of education and research tools
  • Access to over 80 currencies to buy and sell
  • Leverage available up to 50:1
Cons
  • Cannot buy and sell other securities (like stocks and bonds)
  • Confusing margin requirements that vary by currency
  • Limited customer support options
  • Cannot open an IRA or other retirement account
Commissions
$10 value per pip
Account Min
$0
Get started securely through IG Group’s website
Commissions
$10 value per pip
Account Min
$0
1 Minute Review

IG is a comprehensive forex broker that offers full access to the currency market and support for over 80 currency pairs. The broker only offers forex trading to its U.S.-based customers, the brokerage does it spectacularly well. Novice traders will love IG’s intuitive mobile and desktop platforms, while advanced traders will revel in the platform’s selection of indicators and charting tools. Though IG could work on its customer service and fees, the broker is an asset to new forex traders and those who prefer a more streamlined interface.  

Best For
  • New forex traders who are still learning the ropes
  • Traders who prefer a simple, clean interface
  • Forex traders who trade primarily on a tablet
Pros
  • Easy-to-navigate platform is easy for beginners to master
  • Mobile and tablet platforms offer full functionality of the desktop version
  • Margin rates are easy to understand and affordable
  • Access to over 80 currency pairs
Cons
  • U.S. traders can currently only trade forex
  • Customer service options are lacking
  • No 2-factor authentication on mobile
eToro
Commissions
0.09% spread cost
Account Min
$50
Get started securely through eToro’s website
Commissions
0.09% spread cost
Account Min
$50
1 Minute Review

Best For
Pros
Cons

Long and Short Positions

When you make an initial trade in the forex market, you enter into a position. This means you’ve effectively taken a position on the future direction of the exchange rate of the currency pair you made a transaction in. You can add to that position by making additional transactions in the same direction or reduce that position by closing out existing trades. 

Furthermore, each currency pair has a base currency and a counter currency that are traditionally notated by their three-letter ISO 4217 codes with a slash “/” between them. For example, the European Union’s euro (EUR) quoted as the base currency against the U.S. dollar (USD) as the counter currency is written EUR/USD. 

Entering a Long Position

If you buy the base currency and sell the counter currency, then you have entered into a long position in that currency pair. Hence, when you buy the euro and sell the dollar, you have bought EUR/USD and have taken a long euro position in that currency pair. 

Entering a Short Position

If you sell the base currency and buy the counter currency, you’ve entered into a short position in that pair. When you sell the euro and buy the dollar, you have sold EUR/USD and have taken a short euro position in that currency pair. 

Forex Risk and Reward

Just like in the stock market, you make a profit when trading forex by taking a position that increases in value. Similarly, you make a loss when your position loses value. While the position remains open, those gains or losses are unrealized, but when you close out either type of position, they become realized. 

Many online brokers let traders magnify the risk they take and the potential rewards they might gain on a trading position by using leverage. Leverage is generally expressed in the base currency you are trading as a ratio of the position size you can control when you put up 1 unit on deposit as margin. Therefore, a 500:1 leverage ratio means you can control a $500 position in a currency pair like USD/JPY using just $1 placed on deposit as margin. 

Most successful traders will only consider entering a trade if it meets a minimum risk/reward ratio they have decided upon as a trading criteria. For example, they might be willing to risk 100 pips on a trade under consideration to gain an expected 200 pips given the move they expect, so the risk/reward ratio of that trade would be 100:200 or 1:2. 

Learning How to Trade Forex Just Starts the Process

While the mechanics of trading forex might seem rather simple, evolving from a beginner into a successful trader remains the much more challenging part of learning to trade forex. This transformation involves developing the right strategy, discipline and mindset required to stay in business over the long haul. 

Also remember that many forex trading strategies require fast reactions, clerical accuracy and nimble thinking, which may not suit everyone. You will also need to learn to master your emotions, keep your ego in check and humbly admit your trading errors while you remain resilient enough to pick yourself up psychologically and take a risk on another trade. 

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