Learn to Trade Forex: a beginner's guide

This guide is a great starting point for anyone that wants to learn to trade Forex. Our guide will help you to understand the following:

The forex markets are very liquid, meaning it is easy to buy and sell currencies, and the forex market is open all day.

The global foreign exchange market opens in Australia on Monday morning, and closes in New York on Friday evening.

This is because currency prices are so important to the day-to-day operation of the global economy that market participants (like banks) cannot afford to have the market closed at any point in time during the week.

As you learn to trade forex, you can either open a Contract for Differences or CFD account, or if you live in the UK or Ireland you can open a tax free spread betting account.

It is also possible to open a dedicated forex trading account with many banks and brokers which will give you access to a wide range of currencies.

For those of you in the United States, where spread betting and Contracts for Difference are not available, you can still open a forex trading account with a specialist forex broker.

Forex trading lets you trade any liquid currency against any other. Bear in mind, you are not bound by your home currency. Just because you get paid in British pounds or Euros does not mean you can only trade these currencies against foreign currencies.

A Forex broker should still be able to quote you a price on Japanese yen (JPY) against the US dollar (USD), regardless of your base currency.

All currencies have a three letter code to designate them, from AUD for Australian dollar to ZAR for South African rand. Currencies are quoted as pairs. You cannot trade them in isolation. You have to trade one currency against another.

We’ve put together a series of short forex trading guides to the most traded currencies in the world to help you understand them a little better.

Your broker platform may be offering EUR/USD quoted at 1.3225.

This means that you need 1.3225 of the currency on the right (in this case the US dollar) to buy one unit of the currency on the left (one euro).

The currency will usually be quoted as a ‘spread’: this means it will have a ‘buy’ price and a ‘sell’ price. You use the buy price if you think the price will go up, and the sell price if you think it will go down.

In the above example, you might see EUR/USD 1.3218-1.3219. The number on the left is the sell or ‘bid’ price (which you would use if you think it is going to go down), the number on the right is the buy or ‘offer’ price (used if you think it is going to go up).

For currency ‘majors’ – namely the most widely traded currencies issued by the biggest economies, like the US dollar, the euro, and the yen – you should expect to see very ‘tight’ spreads (only one or two points of difference between the bid/sell price and the buy/offer price).

FX traders refer to the tiny difference in forex prices as ‘pips’ – 0.0001 would be one pip in the case of the EUR/USD currency pair, but this can change depending on which currencies you are trading.

AUD/JPY is typically quoted with two decimal places, because it takes a double figure amount of yen (e.g. 85.10) to buy a single Australian dollar.

Forex trading usually requires high amounts of leverage. This is because the daily or weekly change in the value of a currency pair is small, much smaller than other financial markets.

It is why Forex brokers will lend their customers money with which to trade, and hopefully make money. This is called ‘trading on margin’, with margin being the amount of money you are depositing for the trade. As an FX trader, you will usually only need to finance a small portion of the overall value of your trade.

If you are using a spread betting or Contracts for Difference account, you will usually see fixed margin rates quoted as a percentage against each pair.

A 1% margin rate is typical in foreign currency markets these days. This is the amount you need to deposit to open the trade.

Your broker will put up the rest.

Be warned: trading on margin means you are magnifying the total size of your trade. A 1% margin rate means £100 of your own money is being turned into £10,000 in the forex market. If you trade successfully, you can pocket the profit a £10,000 forex trade would bring you. If you take a loss, you are responsible for the loss to a £10,000 trade, NOT your £100 margin.

Therefore, it is possible to lose more money trading on margin that you originally deposited.

With this in mind, it is important that you protect yourself against losses by using a stop loss. A stop loss is an automatic instruction to close your trade at the price you specify. It means you can limit your loss in advance and protect yourself from exposure to trades that significantly move away from you.

Changes in regulations in 2018 have limited the amount of margin that inexperienced traders have access to and typically, the margins offered above are available only to professional traders, Beginners won’t be exposed to the high margins pre-2018 as they learn to trade forex.

To really start to understand FX trading, you’ll need to test yourself against the currency markets. Here at The Armchair Trader, we always recommend starting off with a demo account to help you learn to trade Forex.

The reason? A demo account provides two valuable insights. Firstly, it will provide you with the chance to test out a platform before you commit real money; and secondly, test out your trading strategies with real prices.

The majority of forex brokers will offer a demo account. We would urge you to give your chosen platform a test drive before you begin trading for real.

Muslims are typically advised to open Islamic Forex accounts that practice Shariah principles. These Islamic forex accounts, also known as swap-free accounts, are halal trading accounts in which interest is not accumulated, collected or paid. These accounts do not make use of futures and forward contracts. All transactions (including the transaction cost) take place without any delay. You can read our thoughts on whether trading is Halal or Haram and explore a small selection of regulated brokers offering permissable accounts.

Find a full list of regulated forex brokers here. Navigate further and we’ll provide you with a detailed review of each broker and, most importantly, our impartial view on their products and services.

We would urge you to check that your chosen broker is authorised and regulated by the appropriate regulatory body. For example, the UK’s Financial Conduct Authority (FCA) provides a Financial Services Register which includes all brokers that are authorised and regulated in the UK. Please check the appropriate register before you commit funds.

Here’s a selection of FX trading accounts for you to take a look at. The FX brokers we feature on The Armchair Trader are all regulated by the FCA and will be a good benchmark as you research your options.

Broker	Minimum Deposit	Markets	Products
Pepperstone	£0	Bonds Commodities Currencies Indices Stocks & Shares	CFDs FX Spread Betting
With a strong focus on the trading experience, industry leading technology, low costs and award-winning client support, we feel that Pepperstone is a good option for the more established high volume day trader. Take me to Pepperstone
FP Markets	$100	Bonds Commodities Currencies Indices Stocks & Shares	CFDs FX
FP Markets is an established ASIC, CySEC FSP and CMA regulated broker. They offer access to the industry leading MetaTrader platforms and provide pricing directly from the market meaning fast execution and transparent pricing. A 24/7 multilingual client support service has won recognition through the highly respected Investment Trends awards. Take me to FP Markets
FxPro	$100	Bonds Commodities Currencies Indices Stocks & Shares	CFDs FX
FxPro is a fully regulated CFD provider offering Forex, Metals, Indices, Futures, Cryptos and Stocks. Clients have access to over 2000+ financial instruments and the company serves clients in 173 countries worldwide. FxPro was voted ‘Best Forex Provider’ by The Armchair Trader readers for 2024. Take me to FxPro
Admiral Markets	$250	Bonds Commodities Currencies Indices Stocks & Shares	CFDs ETFs FX Stocks & Shares
Admiral Markets was founded in 2001. The broker offers the powerful MT4 and MT5 platforms across a number of account types which are designed for a wide range of trading experience. Clients can trade CFDs on Bonds, Commodities, Currencies, Indices, Stocks & Shares . On top of that, traders who are looking for real assets can invest in over 200 ETFs and 4,500 Stocks through a non-leveraged account with this online broker on MT5. Risk Warning: 61% of retail CFD accounts lose money with this provider. Take me to Admiral Markets
Capital.com	£20	Bonds Commodities Currencies Indices Stocks & Shares	CFDs FX
Capital.com’s intuitive, user-friendly platform, round-the-clock support and seamless integration with MT4 and TradingView make it a worthy contender for beginner and experienced traders alike. The broker boasts an ‘Excellent’ Trustpilot rating. Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Take me to Capital.com

• See our full FX broker list