Beginner traders often have a hard time learning how to trade forex. They usually worry if forex trading is safe and if there are good forex brokers for beginners that can help them through the process. Luckily, we have answers to these questions.
We’ve done the research and put all the important information in this beginner guide to forex trading. This guide will go through the basics of forex trading for beginners and look at the best forex broker for beginner traders. The basics of forex trading will be centred around discussing terms like spread, leverage, and fees. We will also look at some forex instruments you can trade on different forex brokers.
Finally, we will look at advice from traders on Reddit and Quora, so that beginner traders can have a clear idea of what is expected when they start trading. You can also check the Frequently Asked Questions (FAQs) section at the end to see some quick answers to common questions about forex trading for beginners.
What is Forex Trading?
Forex is the short form of the word “Foreign Exchange”. As the name implies, it involves the exchange of foreign currencies in an organised manner. Different countries around the world have different official currencies. The United States uses the US Dollar ($), Great Britain uses the Great Britain Pounds (£), and so on. When people need to do international business that requires spending a foreign currency, they exchange their country’s official currency with the required one. This process is called foreign exchange.
People exchange currencies for different reasons. Some people do it because they need to do business with a foreign currency; others convert to a more stable currency like the US Dollar because they have little faith in the country’s currency. Then there are people who monitor the market, looking for rise and fall in the value of currencies so they can buy and sell to make some profit. These people are called forex traders.
Forex trading is the act of exchanging foreign currencies from countries all over the world for all the different reasons we have mentioned above. The forex market surpasses the stock market in terms of size, making it the largest financial market in the world. Almost every individual and financial institution in the world is affected by the forex market. Businesses (small businesses and multinationals), commercial and central banks, investment management companies, and individuals all trade daily on the forex market. According to the BIS Triennial Bank Survey, more than $6.6 trillion is exchanged daily in the forex market globally.
Forex traders don’t always make a profit from their trade. In fact, most retail traders lose money from forex trading. This is often due to poor decisions and bad money management. However, with the right beginner forex trading strategies from a seasoned trader or financial advisor and the best online trading brokers, it is possible to make a profit, though not guaranteed.
What are Forex Brokers?
A forex broker is a financial service company that gives you a platform to trade and exchange currencies. It gives you information about the forex market so you can decide to buy or sell financial instruments as you see fit. When you make a buying or selling decision, brokers help you carry it out. More than that, they often offer educational resources on how to trade the forex market, as well as an opportunity for you to mimic trades from seasoned professionals so that you can get similar results. This is called social trading.
There are many forex brokers for beginners, but we are concerned about the best. The best forex broker for beginners should be one with excellent educational resources, customer service, an intuitive interface, and low trading cost. We’ve listed five forex brokers that fit this description perfectly above.
How to Learn Forex Trading Basics for Beginners?
As a beginner looking to trade forex for the first time, it’s important you understand the basics. The best way to do this is to register for a forex trading course. Most forex brokers offer trading courses to teach you the basics of forex trading and how to use their interface. If you have selected a forex broker, checking out their courses would help a lot.
Courses are great, but they won’t offer you the full hands-on forex trading experience. To get this, you need to open a demo account. A demo account is similar to a real account, except it uses virtual money, not real money. You can make trades on demo accounts and see the results without risking your capital. All forex brokers listed above offer demo accounts and give you up to $10,000 to trade with.
Another way to learn is by attending webinars organised by the forex broker. At these webinars, experienced forex traders can talk about daily experiences involved in trading and other vital information you may not get from the courses.
When you decide to start trading, there are trading tools that can assist you and help you learn faster. For example, the best forex brokers often offer news and chart tools to traders. You can study a chart to know the state of different currencies in the market and make informed decisions. There are also screeners which help you scan through different trades on the market using a set of specific parameters. With these trading tools and courses, you should be ready to start trading forex.
Factors to Consider When Choosing a Forex Broker for Beginners
Before choosing a forex broker to trade with, there are some factors you must consider. Any forex broker lacking a good number of these factors should be tossed aside. Here are some of the factors to consider when choosing a forex broker as a beginner:
All forex brokers must be regulated by at least one financial regulatory body before they can be deemed trustworthy. This financial regulator depends on your country and residence. No single international organisation regulates all the forex brokers in the world. In the United States, there are many financial regulatory bodies that monitor forex brokers. They include the United States Securities and Exchange Commission (US SEC), Financial Industry Regulatory Authority (FINRA), National Futures Association (NFA), and the Commodity Futures Trading Commission (CFTC). In the UK, we have the Financial Conduct Authority (FCA), while Australia has the Australian Securities & Investments Commission (ASIC).
Why is it important that all forex brokers are regulated? Because regulatory bodies ensure that all brokers follow a set of rules that protect your investment and data as a trader. So before you use a forex broker, check that the regulatory bodies in your country regulate them.
As a beginner trader, you should be looking for forex brokers with apps that have an intuitive interface. An intuitive interface works as expected. This means the app uses simple language to convey information and performs instructions as ordered. If there is an error message, it delivers it in terms that are easy to understand. An intuitive interface also has tools like charts, news and screeners placed orderly, so the beginner can navigate the app easily.
Forex trading for beginners is not as easy as many people sell it. You can only become a master trader if you learn and practice. A forex broker should offer you opportunities to learn. Education offerings like courses, tutorial videos, and webinars are essential to your growth as a beginner forex trader, and any forex broker you select should offer them. Before you pick a forex broker, go through their education offerings and see if you would benefit from them.
After learning all the basics of forex trading, you need to practice trading. A good place to start would be with a demo account. Demo accounts are trading accounts that use virtual money. You can trade with them, but you won’t gain or lose any money in real life. The best forex brokers for beginner traders offer demo accounts with up to $10,000 of virtual money. If a forex broker doesn’t offer you a demo account, they might not be a good fit for you.
Fees and Commission
Forex brokers charge fees and commissions for their services. Some common fees and commissions are:
- Spreads: Spread is the difference between the bid/ask price of securities offered by a forex broker. Brokers often add a small markup on the price of securities so that they make a profit when you trade these securities with them. Spreads are the most common fees in forex trading.
- Deposit & Withdrawal Fees: These are fees you pay for deposit and withdrawal of trading capital.
- Overnight fee: You pay this fee when you hold a position overnight.
- Commissions: Brokers with zero spreads often charge a commission for trading using their platform.
- Inactivity fee: You pay this fee when you go for months without any trading activity.
There are many other kinds of fees and commissions depending on the broker, but these are the most common. Some brokers offer zero fees and commissions and make their profit from spreads.
Forex brokers buy and sell financial instruments to and from traders on their platform. The price for selling (bid price) is always higher than the market rate, and the purchase price (ask price) is always lower than the market rate by a little bit. This difference between the bid and ask price is known as a spread. For example, if the bid/ask price for a currency/asset is $1.1/1.2, if an investor wanted to buy, they would buy that currency at $1.2. Let’s say they immediately had a change of mind and wanted to sell it back, they’d sell it at $1.1 per 1 unit of the currency/asset, meaning the broker had gained $0.1 on that transaction alone.
Most forex brokers use spreads as a way of making a profit for the trading service they provide. They try to offer tighter spreads to remain competitive, but they can’t eliminate it completely. It is always best to look for a tight-spread forex broker for beginners. If you find one with zero spreads, then you will have to pay higher commissions than normal.
The execution speed of a forex broker is the time it takes for a forex broker to execute an order on the live market after a trader places a trade on the brokerage platform. This factor is very important in forex trading, as slow execution could mean a loss in a volatile market. For example, if your goal was to scalp the market in the event of small price movements, a slow-executing broker would make that impossible.
Find out about a broker’s execution speed from traders who have used them before you choose them. Brokers that are renowned for their quick execution speed include the XM broker platform, AvaTrade, IC Markets, and Pepperstone.
Trading platforms are your forex broker’s software applications to place trades on the forex market. Widely-used trading platforms include MT4, MT5, and cTrader. Some forex brokers offer all three widely-used trading platforms, while forex brokers like eToro have their own proprietary trading platforms. Find the forex broker with the trading platform(s) that work for you. You may need guidance from an experienced trader to know which ones you should pick.
Trading instruments refer to the markets you can trade on a forex broker platform. Sometimes, trading instruments are also called securities. Examples include stocks, CFDs, currencies, cryptocurrencies, indices, etc. A robust forex broker should be able to offer as many trading instruments as possible. If you must pick a forex broker, pick a robust one with multiple trading instruments.
Also, a forex broker should offer as many currencies as possible. Some forex traders offer 45 or more currencies for trading, including the popular ones – GBP, USD, EUR, etc.
As a beginner forex trader, you will face challenges on a forex broker platform. You may not know where a certain option is or what an error message means. This is where good customer service is necessary. Customer service can guide you through your challenges and help you with information that would help you on your journey through forex trading.
Insurance and Security
One of the biggest fears people have about trading forex is for their safety. They want to be sure they can count on the forex broker to keep their money safe. People also want to be sure that they won’t lose their money due to some mistake by the forex broker. Thankfully, many regulatory bodies are aware of these fears and have created regulations to protect traders. Forex brokers are required to keep separate insurance funds in Tier 1 banks to insure their customers’ funds. This way, even if the business goes bankrupt, there is always money to pay back the customer.
Before you trade with a forex broker, check that the broker has an insurance plan to protect your capital in case they go out of business. Also, check that they have data protection to protect your private information from hackers.
Pros and Cons of Forex Brokers for Beginners
Here are some of the common pros and cons of forex brokers for beginners.
- Low Spreads
- Data Protection and Security
- Good Customer Service
- Availability of Demo Account to Practice Trading
- Social Trading
- Multiple Payment Options
- Multiple Trading Instruments
- Intuitive Trading Platform Interface
- Deposit and Withdrawal Fees
- Overnight Fees may be high
How to Create an Account with a Forex Broker for Beginners
The process involved in creating an account with a forex broker depends on the broker, but there are some general steps every beginner trader can go through. Here are the steps:
Get your Documents Ready for Identification
You must present a few documents for the KYC (Know Your Customer) verification. KYC verification is a mandatory verification every financial institution must go through to confirm that you are who you say you are. Some documents you could use for KYC verification include
- Proof of identity: Government-issued IDs like your driver’s licence or international passport
- Proof of address: Utility bills, bank statement. This document should contain your address and must be dated within the past three months.
Go to the Homepage of the Forex Broker and Open an Account
After you have selected the broker, you wish to trade with, go to the homepage of their website. Then click on the “Open Account,” “Trade now,” or “Start Investing” buttons.
This should lead you to another page where you input details like your name and email address.
The broker will send you a link to your email address for confirmation. You can do this by going to your email and clicking on the link sent to you.
Verify your Identity
You can verify your identity by scanning your documents and sending them to the broker. Take clear photographs of all required documents and a snapshot of your face. On a form, you will also be required to fill in all your details, including your date of birth, address, date of birth, and other important information.
The broker will usually take a few days to verify the authenticity of your documents before allowing you to trade.
Choose an Account Type
There are two basic account types: demo and real. A demo account uses virtual funds to trade and is good for beginners who don’t want to take any serious risks. A real account uses real funds to trade. There are different types of real accounts, like Islamic, ECN, crypto, and standard accounts. As a beginner, it would be best to stick to the standard account.
Deposit Funds and Start Trading
After you have chosen a standard account, deposit some funds by clicking on the “deposit” button on the broker platform. The broker will present you with different payment options that you can use, like bank transfer, credit or debit card, PayPal, etc. After this, you can check the supported trading markets on the broker and start trading. You can trade currencies, ETFs, indices, cryptocurrencies, etc., on brokers like eToro and Capital.com.
What Instruments Can a Beginner Trade?
As a beginner, there are different trading instruments you can trade with forex brokers. A trading instrument is a tradeable asset or contracts you can exchange. All trading instruments have markets where you can exchange them with other traders. The most common instruments you’ll find on forex brokers for beginners are:
Forex trading involves the exchange of different currencies. According to various estimates, more than $6 trillion worth of currencies is exchanged every day on the forex market. Many brokers like eToro, Pepperstone, and Capital.com offer forex markets for beginner traders to trade different currency pairs.
A currency pair is two currency values being quoted against one another. For example, the pair USD/GBP has the value of the base currency (USD) quoted against the quote currency (GBP). When you buy the currency pair, you buy the base currency using the quote currency, while selling the currency pair means selling the base currency and receiving the quote currency.
A commodity is an actual good or item sold in the financial market. You can buy a traditional physical commodity around you, but that limits you to commodities you can access directly and store at home. Using a broker, you can invest in commodities like natural gas, oil, cattle, soybean, corn, etc. without needing to buy and store them physically.
An index is a standardised method for tracking the performance of group assets. There are different standard indices worldwide, like the S&P 500, ASX 200, and the Dow Jones Industrial Average. You can trade indices on different forex brokers for beginners, but it is advised that you get some good training before doing so.
Stocks or shares represent a part of a corporation’s ownership. If you have one share of a company, you have a tiny percentage of ownership in that company. The amount of ownership you have depends on the number of shares the company has made available. People often buy shares in corporations with the hope that the corporation will grow and the value of their shares will increase. Some corporations also pay dividends, which are annual profits, to its shareholders.
Some stock investors choose to trade CFDs instead of investing in real stocks directly. CFD is an acronym for Contract For Difference, which allows you to trade on the price movements of financial instruments. With CFDs, you can speculate the direction of a stock, and make profit if the stock moves in that direction. The difference between CFD trading and investing in real stock is that with CFD trading, you don’t buy the stocks directly or own a percentage of the company, whereas real stock investing requires that you purchase and own a share of that company until you decide to sell it. In addition, you can trade CFDs with the use of leverage, which is a borrowed fund from your broker.
There are thousands of stocks available for trading on different stock markets, and your forex broker can give you access to the stock market. Examples of stock markets you can trade on include the New York Stock Exchange (NYSE), Nasdaq, London Stock Exchange, and the Australian Securities Exchange. You can find shares of companies like Apple (AAPL), Amazon (AMZN), Walt Disney (DIS), Tesla (TSLA) and many more in these stock markets.
ETF is an acronym for Exchange-Traded Funds. ETFs are pools of investment, just like mutual funds. The major difference between ETFs and mutual funds is that ETFs can be sold on a stock exchange. You can trade ETFs on many forex brokers available for beginners.
How Much Does A Beginner Need to Start Trading?
The amount of capital a beginner needs to start trading depends on the required minimum deposit of the forex broker. Some brokers, like eToro, require a $10 minimum deposit before you can start trading, while others, like XTB, do not require any minimum amount. There are brokers like IG Trading that have a minimum deposit when you pay using credit cards/debit cards or PayPal but no minimum deposit with bank transfers. Other brokers with low minimum deposits are:
- eToro – $50 ($10 in the UK and US)
- Capital.com – $20
- Admiral Markets, InstaForex, Interactive Brokers – $1
- RoboForex – $10
- Oanda, AMarkets – $0
- AvaTrade – $100
- Markets.com – $100
- XTB – $0
As a beginner, you can take advantage of forex brokers with low deposits while practising and honing your trading skills. Demo accounts are great, but there are loads of resources you can only access when you start trading with a live account. With as low as $1, you can gain access to the range of tools your broker uses while practising your trading and minimising your risk. However, you must be careful of using big leverages, so you don’t run into a negative account problem.
How Long Will it Take a Beginner to Start Trading?
The time it takes to learn the market basics and start trading successfully depends on the beginner’s ability to grasp new knowledge and their dedication to learning. A beginner who invests long hours every day reading, taking courses, learning from an expert, and demo trading will learn faster than a beginner who learns forex trading on the side.
A beginner can learn the basics and technical aspects of trading in a few weeks, but it could take anywhere between 3 months and 6 months to understand risk management and trading psychology. Using a demo account to learn helps tremendously.
Is Forex Trading Profitable?
Because it is the largest financial market in the world, people generally think forex trading means instant profit. While there are lots of people who make a good profit from forex trading, there are many more people who lose money every day in the market. Many estimates show that more than 70% of retail traders lose money due to poor risk management, high leverage, and overtrading. Many beginner traders fall into this category, so they quit early.
However, if you follow the right learning curve and use the right strategy (gotten from an expert) and money management, it is possible to make a profit as a forex trader.
Is Forex Trading Safe for Beginners?
Forex trading involves some amount of risk, especially if you are trading with a significant amount of money. Whether forex trading is safe or not for you as a beginner trader heavily depends on the strategy you choose to adopt, your dedication to learning, and the forex broker you choose.
Forex brokers have different measures in place to ensure the safety of your capital. Let us go through some of them:
Negative balance protection: Forex brokers offer leverage to traders, i.e., borrow them funds so that they can increase their trading position beyond what their capital can allow. Sometimes, this could go the wrong way and traders could lose more than their capital, and their balance becomes negative. Forex brokers offer negative balance protection that cuts off trades before a trader’s balance goes below zero. This means you can never owe a broker with negative balance protection.
Data Protection: They secure traders’ data from hackers to avoid crimes like identity theft. Secure Socket Layer (SSL) Technology: SSL is used to ensure transactions are safe and secure Insurance: Brokers are mandated to keep funds aside as insurance for traders. Most regulatory bodies require that forex brokers keep $1 million or more in Tier 1 banks. They must not use the money for any form of business as the only purpose of keeping it is to protect the traders from loss if the brokers go out of business.
What Reddit and Quora Say About Forex Trading For Beginners
On Reddit, many people shared opinions on who they thought were the best forex brokers for beginners. Some Redditors mentioned brokers like Oanda, FXCM, and MBT Trading for different reasons.
One Redditor said they used the eToro trading platform and Plus500, but they didn’t think eToro looked professional enough, and the Plus500 charts viewer wasn’t satisfactory.
Another Redditor thought IB Markets was the best because they were reasonably priced.
On Quora, some users gave newbie traders some important advice and told them that any forex broker with a demo account would work for them in the beginning. They said that as long as beginners focus on learning to trade with demo accounts, they’ll be fine with brokers like AvaTrade.
Others also mentioned features forex brokers must have before a newbie trader should use them. Most of the features mentioned were mentioned in this guide.
Other quora users mentioned names like IC Markets, XM, FXTM, etc.
Forex trading for beginners can be a seemingly long and difficult journey, but it is possible with the right resources and brokers. Many beginner traders fail because they choose the wrong broker or have a false notion of forex trading. As a beginner, your goal should be to trade with a broker that provides as much training and information as possible. A demo account is also a must, as it gives you insight into the world of forex trading without requiring any capital or risk from your end.
You need proof of identification and address to create an account with a forex broker. You also need an email address, and in some cases, confirmation of your mobile number. The forex broker is mandated to follow the regulations of the regulatory bodies within your country of residence, so any law or restriction imposed in your country applies to you as well. When you open an account, you can trade forex, ETFs, indices, stocks, and cryptocurrencies. Most brokers will allow you to start trading with $100 or less, with some requiring only $1 as capital for trading.
There are many great forex brokers for beginners, but out of the hundreds available, we have selected five to talk about in this article. They are eToro, Capital.com, IG, IC Markets, and Plus 500.
As a beginner, learning to trade forex will require discipline, patience, and focus. It is possible to make some profit, but most people won’t because they think of forex trading as a get-rich-quick scheme. In fact, most beginners will lose more than they make because of this mindset. On average, it can take anywhere from 3 to 6 months of diligent practice to become a proficient trader, so be patient and take your learning seriously.
Finally, confirm that your forex broker offers negative balance and data protection so that you don’t lose more than your capital and also so that you don’t lose your private information to hackers.
Q & A
The best forex brokers for beginners have resources and features that make it possible for newbies to learn how to trade. Such features include a demo account, webinars, technical analysis reports, etc. There are many forex brokers that meet this criteria, including eToro, Plus500, Capital.com, AvaTrade, Pepperstone, IC Markets, and IG.
Some easy-to-use forex brokers are AvaTrade, Capital.com, eToro, Pepperstone, and IG.
The forex brokers that offer the best education for beginners are IG, eToro, AvaTrade, IC Markets, XM, and Capital.com.
Beginners need good trading conditions to encourage them when they start. Trading conditions like low spread, fast execution, zero or low commission and many more. Some forex brokers that offer these great trading conditions are eToro, Capital.com, IC Markets, Pepperstone, HotForex, and Exness.
Yes, a beginner can learn to trade forex online. Many courses and tutorials are available for free on Youtube and different forex broker platforms. You can also open a demo account and practice social trading online.
No, beginners are not required to pay to learn to trade online. There are free courses and tutorials on Youtube and different forex broker platforms where you can learn the basics of trading for free. However, if you want to learn faster or minimise your risk, you can pay an expert to teach you how to trade like a professional.
Yes, forex trading is legal in most countries in the world. Not only is it legal, it is the largest and one of the most respected markers in the world. It is the market that makes a lot of international trade possible, and most trade would never happen if the forex market didn’t exist.
The minimum deposit of some of the best forex brokers for beginners are:
- eToro – $50 ($10 in the UK and US)
- Capital.com – $20
- XM – $5
- Admiral Markets, InstaForex, Interactive Brokers – $1
- RoboForex – $10
- Oanda, AMarkets – $0
- Plus500 – $100
- IC Markets – $200
Pepperstone – $0