Welcome to Forex Trading Tutorial For Beginners basics guide. If you are new to Forex trading and willing to start learning, you have landed at the right page.
This is a step by step Forex trading tutorial. This tutorial aims to provide all the necessary information to newcomers in one place.
This tutorial is created by a Forex trading expert; AKA Technician. Technician has been in the markets for over a decade . He is specialized in technical analysis and running for the Chartered Market Technician(level 2) certification. In addition to a Master’s degree in finance .
In this guide, we will explain the most basic definitions and concepts. The concepts you must know before you start learning how to analyze the markets, and make trades.
We will explain things like, what Forex trading is, and how trading works. Also, what is a Forex broker and how to choose one. How to read the prices and much more .
After completing this tutorial, you will be ready to start the intermediate level tutorial. The intermediate tutorial covers analysis and forecasting: Technical Analysis Basics Tutorial.
We ask you to be patient while reading, especially in the beginning. If you feel that a topic is not cleast keep going, it will be clearer by the end of the tutorial.
If you have any questions after completing, please drop it in the comments section. It is at the end of this page.
You can move between chapters through the drop down menu below.
First, lets explain the main forex broker types and how they might affect your trading.
Understanding Broker Types
Forex Market Makers (Dealing Desk Broker)
The Forex market maker is a company that is always ready to buy or sell a financial asset and sets both the sell and the buy prices for their clients. They make transactions at these prices with their customers. and that makes it a liquidity provider for its clients.
If you want to sell, the Forex market maker will be the buyer and if you want to buy it will be the seller. Market makers must take the opposite side of your trade.
Forex market makers are dealing desk broker, this simply means that they have a dealer sitting at the dealing desk in the firm. As you place an order the dealing desk agent receives it and deals with it.
Forex market makers are your counterparties. Therefore, many of them will then try protecting themselves by copying your order somewhere else typically their liquidity providers( a bigger broker or bank). So if you make a profit on the trade, they have themselves covered because they will also make the same profit.
The process of covering usually happens in sums. For example, if the brokers have a net of 234 units buy positions on the EURUSD, and 112 units of sell EURUSD then the net exposure is a 122 units buy EURUSD. If the market maker decides to cover, then it will buy the 122 units of EURUSD from banks.
There are also times in which market makers may decide not to cover if they see that the majority of positions are wrong.
In that case, if the broker didn’t cover the positions somewhere else, and the clients bets turned correct, the broker would lose money. As the must pay their clients the profits.
Given all the information above, the market makers have flexibility. Since they are making the market, they can execute your order at artificial prices that’s not exactly the current real market price.
They can delay your order execution few seconds until the price has changed and then resend to you the new price asking you whether you want to execute your order at this new price.
They can also widen spreads, or even reject to execute your order.
Note: We don’t claim that these practices are done by all market makers. But they do strongly exist in the forex world.
ECN Forex Brokers
ECN Forex brokers provide access to the inter-bank market by using an electronic system to pass on prices from multiple market liquidity providers. Such as banks and market makers connected to the electronic communication network (ECN). The broker then displays the best bid/ask quotes on their trading platforms for traders.
This process is explained in the image below. The ECN broker aggregates multiple price quotes from different banks, for bid and ask and provide the trader the highest BID price and lowest ASK price.
ECN Forex brokers do not make the market for you under this type. Therefore, they are not your counterparties. And thus there is no conflict of interest. The broker profits only from the commission they receive on each trade.
ECN brokers do not have the flexibility market makers have. For example, if you place an order on your trading platform, and the live price changes before the order reaches the broker, the broker will not execute your order. It will automatically resend you a new quote with the new price asking you if you want to execute the order at the new price.
In terms of cost, ECN brokers have the tightest spread in the industry, but they charge extra commission(in addition to the spread) on each transaction made by clients. Thus, the net cost per trade will be very similar to a market maker.
Forex Trading Tutorial Hint: You can see that there are trade-offs with each type of brokers. Choosing the broker type depends on you and what suits your trading style. I personally prefer true ECN brokers as they represent the real conditions/environment of the Forex Market .
Only trade with a regulated Forex broker. Never open an account with an unregulated broker.
Regulation entities such as the NFA and CFTC in the U.S. or FSA in the U.K aim to provide a safer environment for investors and traders.
Regulators develop rules and services to protect the integrity of the Forex market, traders, and investors.
Other Regulatory Institutions:
- The Australian Securities and Investments Commission (ASIC)
- The Japanese Financial Services Agency (FSA)
- The Investment Industry Regulatory Organization of Canada (IIROC) (ASIC)
- The Cyprus Securities and Exchange Commission (CySEC)
Regulated brokers will abide by specific regulations to maintain its regulation by the regulator. Such as capital requirements, fund safety, and segregation (keep client funds in separate bank accounts in major banks).
There are always risks, however, choosing a regulated Forex broker is one of the major steps you should take to minimize chances of unpleasant events.
Forex Account specification that suits your trading style.
Leverage, margin requirements,rollover rates, Commissions and Spreads.
If you are a conservative trader, an account with lower leverage of 20:1 might suit you better.
Word of mouth, but only listen to experienced traders you trust.
Deposit and withdrawal methods that suits you.
Forex Trading Tutorial Hint: Opening a demo account to try the broker is useless advice. This is because brokers put demo accounts on autopilot dealing, and do not monitor them. Thus, there is no human intervention at all. A better idea is to start with a small trial capital.
A Word From Technician
Here I conclude the first part of the Forex Trading Tutorial for beginners. I introduced the basic fundamentals of trading. I tried my best to simplify the concept and be clear.
I encourage you to practice in your demo account and experiment with the Metatrader 5 platform. Apply everything you learned, that would help grasp anything that you didn’t comprehend well.
If you have any feedback or having difficulty with any topic do not hesitate to ask your question in the comments section below. I will be waiting for your comments and will be happy to answer.
Finally, If this tutorial was useful to you, share it with others. Sharing buttons are just below.