Forex Trading for Beginners - Currency Trading Guide

In forex trading, you speculate on the current rates to make a profit from the movements. 

The potential for returns is high, but it is also complex and riskier, which is why you should need to ensure that you have better understanding of the market.  

Forex markets are primarily classified as Spot (real-time exchange), Forward (custom agreements), and Futures (standardized contracts) 

Strategies like Trend Trading and Range Trading are fundamental approaches, and traders often use charts like Candlesticks to visualize price movement and identify trends. 

Educate yourself about the market: A careful understanding of the forex market is a prerequisite, and it involves learning about currency pairs, market dynamics, and technical and fundamental analysis.   

Choose a reliable broker: By choosing a reputable broker, you can leverage their user-friendly platform and technology suite for a faster and smoother trading experience.  

Make a plan and stick to it: Having a trading plan is important for forex trading. Once you have a plan in place, make sure that every trade you are thinking about fits within the constraints of your plan. 

Practise with a demo account: Use a demo account to gain hands-on experience without risking real money. Practise executing trades, analysing charts, and managing risk. 

Start small: Until you gain confidence, bet only a moderate amount in the market. This way, you will be able to contain your losses and recover faster.  

Manage risk: Employ loss-minimising techniques such as stop-loss. Use proper position sizing and avoid overleveraging if you don't want to suffer a significant loss.  

Keep learning and adapting: Stay updated with market news, economic indicators, and continuously refine your trading strategy. 

Regulatory compliance: Selecting a reputable forex broker will ensure that they meet all the regulatory requirements and offer legitimate trading options.  

Account features: The account should have modern features and transparency to conduct trades without worries.  

Currency pairs offered: The trading platform should allow you to trade in all the major currency pairs. 

Initial deposit: Many trading platforms would ask for an initial deposit. You must check that the amount is within your comfortable range. 

Price action trading: It involves making trading decisions based on price action. Price action trading doesn’t involve technical indicators.  

Range trading strategy: Traders in range trading strategies look for trading instruments that fall within a range they have set. Depending on the timeframe used, the range can be anything from 20 pips to several hundred pips.   

Trend trading: Trade in the direction of the trend. Beginners can capitalise on the trading strategy as it is easy to follow and understand.  

Moving average crossover: Traders use the moving average chart to identify trading signals based on crossovers.  

Breakout strategy: Traders trade on currencies that show signs of breakouts on the trading chart.  

RSI Divergence: Traders use the Relative Strength Index (RSI) to spot potential reversals. They look for differences between two price movements. 

Line chart: A simple line chart compares one closing point to another with a single line. The graph represents a clear visual representation of how the price of the instrument has moved over time. It can be ideal for identifying trends. 

Bar chart: Bar charts are more complex and show opening, closing, high, and low prices within a bar. The vertical height of the bar represents the high and low points of the price range. The horizontal lines on the left and right indicate the opening and closing prices, respectively. 

Candlestick chart: This is a type of bar chart that represents opening and closing prices and high and low values in a candlestick-like pattern. Candlesticks help to get a visual representation of bullish and bearish trends.  

Accessibility: The forex market is the largest global market by volume, making it highly liquid and accessible for individual traders through online brokers. 

Leverage: Leverage is commonly used to control larger positions in the market for potentially higher returns, but it also magnifies losses. 

Quick returns: Fast-moving and highly liquid, forex offers for short-term trading opportunities, though this also increases risk. 

Easy short selling: Short selling is simple in the forex market. Every forex trade involves buying one currency and selling another simultaneously.  

Fees: Broker costs in forex trading are often included in the spread (the difference between the buy and sell price) rather than separate commissions.  

Volatility: Foreign currency is highly volatile, which makes forex trading riskier than equity or commodity trading.  

Small trader's problem: For a significant profit, you might have to increase your ticket size, which also increases the potential loss amount.   

Regulation issues: Forex transactions in India are heavily regulated by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). Indian residents are strictly permitted to trade only INR-denominated currency pairs on recognised domestic exchanges like the NSE and BSE. Trading with unregulated foreign brokers or in non-INR pairs is illegal and subject to severe penalties under the Foreign Exchange Management Act (FEMA). 

Currency pair: Foreign currencies are always traded in pairs, where one currency is bought and the other sold. Together, they form the exchange rate.  

Exchange rate: The exchange rate represents the rate at which one currency is exchanged for another.   

Base currency: The currency written first in the currency pair is the base currency. For example, in EUR/USD, EUR is the base currency.  

Quote rate: In a pair, the currency written after the base currency represents the quoted rate.  

Long position: A Long position refers to buying an asset with the expectation of its price rising.  

Short position: A short position refers to selling an asset in anticipation of a price fall. 

Bid/Ask price: Bid is the price quoted by the buyer and Ask is the price quoted by the seller in the market to trade the asset.