A Guide to Trading Currency Pairs

If you’re interested in the financial markets and looking for a change of career, then you may have considered currency trading, or forex trading as it is known. However, the difficulty comes in knowing how to break into this market. There are lots of books out there providing answers, but as a beginner, these can be bewildering. Instead, this article will explore the very first steps you should take as a beginner to start a career in trading.

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What is Forex?

The forex market is the biggest financial market in the world (even larger than the stock market).  Banks and institutions will often use the money they hold and invest it in the markets to generate further funds.

When you exchange one currency for another before going on holiday, this is a similar action; however, when forex trading on a professional level, you essentially pair two currencies (for example EUR USD) and use analysis to determine whether you think the value of the EUR will rise or fall against the dollar.

First Steps

The first thing you need to do when starting as a currency trader is to educate yourself. This is the slowest part of the process, as you don’t want to jump in with live money too early on in your forex career. Sites like Baby Pips offer forex courses to help you learn the very basics, and from there you need to develop your trading style and strategy.

You have to decide if you want to use technical analysis (using indicators and price action to determine what you think the pair will do next) or fundamental analysis (using the news/economic events to determine what the pair will do) or a combination of both. Once you have decided this, you can start to look for strategies that use that method.

YouTube is a great source of forex strategies, but don’t solely rely on instructional videos; add your twist on them and improve them by demo trading and journaling your results, and then making tweaks to the strategy to try and improve your win rate.

Demo trading is hugely important when it comes to Forex. Most brokers offer free demo accounts and MT4 downloads, allowing you to trial your strategies in a simulated live account for free.

Ideally, you want to spend a minimum of six months demo trading prior to going live. Rushing the process will only lead to losses early on, which in turn knocks your confidence and causes traders to give up before ever mastering the skill.

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Risk Management

Having proper risk management in trading will protect your account from going bust. Too many traders start by risking 2% on a trade, only to lose it and then risk 4% to try and win it back and so on. It’s important to create a trading plan for yourself and stick to it rigidly.

If you risk only 1% per trade, you will have to have 100 losses in a row to blow your account, which is unlikely. Use a risk calculator to ensure you are using the correct lot size.

Forex trading can be a lucrative and rewarding career, but it takes time to learn the basics and give yourself a good edge on the market. Don’t rush this phase, demo your strategy, and go live when you are consistent.