Basics Steps for Forex Beginners

Are You a Forex Beginner?
Find Out How to Get Started with Forex Trading
Starting out with Forex Today's job market offers little security for employees. For this reason many of them are providing for retirement by earning additional income online. Forex trading offers a business people can run from anywhere in the world with internet access. Furthermore, forex trading does not require a lot of startup capital, so beginners can start trading with little money and grow it into a nice little financial nest egg. This article discusses 3 important tips that will help any forex beginner become successful at forex currency trading.

Getting Startup Capital
Over the years I've found that the majority of people that are not familiar with trading or investing of any kind have the misconception that it requires a large sum of money to get started. Even though this holds true for some brokers, most brokers are pretty geared towards entry-level investors. There are variuos brokers that will let you start with as little as $200. There's even one broker called Oanda that allows you to start with a mere $50! I know times are tough for a lot of people but $50 is doable for everyone. If you're having problems coming up with this kind of start-up capital you could even sell a couple of things on eBay to get the ball rolling. Everyone has some old junk laying around and remember; one man's junk is another man's treasure. Once you have your capital to start trading you will need to choose a broker.

Success Begins with Choosing the Right Broker
There are two types of Forex brokers. The first is called an Electronic Communication Network or ECN for short. ECN's earn money by charging you a commission for all of your trades placed through them. The other type of forex brokers are called Market Makers. Market Makers may have an interest in seeing you lose money, because they can trade against you with counter-party trading. Opting to trade with an ECN can save you money in the long run and is generally safer.
Before depositing any money with any broker, do the necessary research on them. A good up-to-date resource is Google, just type in your broker's name plus the word "review" and look for forums or other places where site visitors have posted their feedback or vented their frustrations.

Develop Your Plan
After depositing your start-up capital with a broker of your choice you will have to come up with a trading plan. This "blueprint" will act as your road map to success and assist you in achieving your goals. This step is extremely important so be sure to spend enough time on it. Some of the components of every trading plan are financial goals, trading system, trading rules, and money management rules.

Trading as a business is not just a quick way to make money. The best investing advice requires investors to plan and prepare. Whenever you have a business, you have inventory. The inventory in online forex trading is your capital. Manage your capital well so that you can grow your inventory and "expand" your business. Following the rules will help anyone to grow financially in the realm of Forex trading.

What currency pairs to trade in Forex?

Although there is lots of currency pairs offered to Forex traders, if you are a beginner it is easier to start with major currency pairs:

EUR/USD
GBP/USD
USD/JPY

There are several good reasons for that:

1. These currency crosses are widely traded, thus providing liquidity which is needed in order to benefit from price changes.
2. They have tight spreads, except may be for GBP/USD, which most of the time receives higher spread quotation from Forex brokers as it is more volatile (e.g. has wider price ranges than other pairs).
3. They all are traded against US dollar, which automatically suggest that the most active trading hours would be during New York trading session – the session with the highest volume of trades.
4. And finally, there are many Forex trading systems that are developed for trading those pairs and can be found online.

What currency pairs to avoid?

Exotic and uncommon currency pairs should be avoided by novice Forex traders as some further knowledge is needed to trade such pairs successfully.

Here is the list of major currencies beginner traders should focus on:

Euro (EUR)
US Dollar (USD)
British Pound (GBP)
Swiss Franc (CHF)
Japanese Yen (JPY)
Australian Dollar (AUD)
Canadian Dollar (CAD)

Also novice Forex traders should try to avoid currency pairs which have high spreads. Spreads vary from broker to broker. The information about spreads can be found at brokers’ websites, or at the special column called “Spread” on the trading platform itself, or from the Ask/Bid table (found also on the trading platform) by subtracting Bid price from the Ask.

Here is an example:
Forex bid/ask example


On the screenshot we have USD/CHF spread = 3 (Ask – Bid = 0.9992-0.9989 = 3)
GBP/USD spread = 3
EUR/USD spread = 2
USD/JPY spread = 2


Currencies that have high spreads are more volatile, e.g. have wide price ranges and longer price spikes, which unprepared traders may find difficult to trade.

Also a common mistake done by many beginner traders is that they try to monitor too many currency pairs at once. Not only it makes trading hectic and more difficult to manage, it also prevents deeper analysis of the currency pairs and actually learning their “behavior” over the time.
Currency pairs do have their unique ways to move, react to economical events, form trends etc.
By studying one currency pair at the time, Forex traders have the ability to observe its behavior and learn the ways to trade the pair even more effectively.