What is Forex?
A Beginners Guide.

Forex trading for beginners can be especially difficult due to the unrealistic expectations of overnight riches when it comes to newcomers in the financial market. So, how does a beginner trader learn to trade Forex from scratch? When it comes to Forex trading significant risk is involved and therefore forex education is essential.  

What Is the Forex Market?

The foreign exchange market is a global financial market where currencies are traded. A unique aspect of the foreign exchange market is that its not a centralized marketplace and currency trading is conducted electronically over-the-counter or OTC, which simply said, means that all transactions will happen via computer networks between traders around the world. 

The foreign exchange market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centres of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney, across a large time zone. 

 

What Is Forex Trading?

Forex is a form of foreign currency and exchange. Foreign currency and exchange is the process of changing one currency into another currency for a variety of reasons. These reasons can include commerce, trading or tourism. The foreign exchange is better known as FX or forex, and is a global marketplace (as mentioned above) created for traders to exchange national currencies against one another.  

For traders just getting started, we have created a complete Beginner’s Guide to introduce them to the most used forex terminology or “lingo” and to answer the most commonly asked questions and more.

Forex Lingo!

This may seem like a long and unnecessary read but if a beginner trader doesn’t understand what they are reading they will be lost in a very large market from the start and this may end up as a very costly mistake to make. Think of it as going to a country where an unknown language is spoken and trying to make a purchase or sale – scary thought right?  This list is good to print out and pin on a note board as a quick reference guide. Trust us on this!  We will take a look at a few more terms in detail as the guide continues.

  • Active Balance:  This term refers to the cash count.
  • Ask:  This refers to the rate at which the dealer sells a financial 

instrument or the price at which a trader is going to purchase a currency. 

  • Bid: The Bid price is the price a forex trader is willing to sell a currency 

pair for.

  • Base Currency:   The currency which is used to quote all the trades in Foreign 

Exchange Market. 

  • Bear:   This is used in reference to someone who believes that the position 

or the market will go down.

  • Better Price:  Describes the better price in case it is higher than is currently 

available in the market. 

  • Broker: This is whereby the market participants perform transactions using 

specific set of instruments at the expense and on behalf of the clients. Remember to check out the best brokers for beginners at the end of this article!

  • Brokerage: Brokerage refers to the commission or the fee that a broker is paid 

for the rendered services. 

  • Bull: Is someone who has belief that the position or the market will rise.
  • Cable: Slang for the dealers for the USD/GBP exchange rate.
  • Change: The difference between the closing price of the previous day of 

trading and the current price.

  • Change %: The is determined as the ratio of Change and the instrument’s 

current price [% Change = (Change / Price) * 100].

  • Close Position: A transaction that once made leads to the closure of the position 

that was open.

  • Currency Risk: The risk of incurring the losses that ensue from any unfavourable 

change of the exchange rates.

  • Day Trading: The opening and closing at the same positions or position within a 

single trading day.

  • ECB: Stands for the European Central Bank.
  • Execution Warrant: This is whereby a transaction broker is committed in line with the 

warrant and cancellation of orders.

  • Limit: Limit refers to an order to sell or buy currency at a price that is specified or even better. 
  • Lock: The opening of two positions for one specification, one instrument 

and the same size in various directions. 

There are obviously many more terms which will pop up once a beginner trader gets deeper into the Forex Market, and it is always a good idea to keep notes.  Here is a quick overview of a few more need to know terms – 

What Is Bid/Ask Price?

Simply put – the Bid/Ask Price is the price at which a market-maker or dealer is prepared to buy securities or other assets.  When buying and selling currency pairs, the prices for each occasion has a specific name and the price of selling a currency pair is called the Bid price, for buying a currency pair – Ask price. Both Bid and Ask prices are updated in real time.

Simply put – the Bid/Ask Price is the price at which a market-maker or dealer is prepared to buy securities or other assets.  When buying and selling currency pairs, the prices for each occasion has a specific name and the price of selling a currency pair is called the Bid price, for buying a currency pair – Ask price. Both Bid and Ask prices are updated in real time.

What Is Lot?

Forex is commonly traded in specific amounts called lots which basically refers to the number of currency units a trader will buy or sell.  The standard size for a lot is 100,000 units of currency, and now, there are also minimicro, and nano lot sizes that are 10,000, 1,000, and 100 units.

Some brokers will show quantity in “lots”, while others may show the actual currency units.

What Is Spread in Forex?

The spread in forex, is the difference between the Ask and Bid price or the cost of trading. For example, if the Ask price of EUR/USD is 1.2751 and the Bid price is 1.2750, the spread is Ask minus the Bid price which equals 1 pip.

What Is Pip?

A pip, short for point in percentage, represents a tiny measure of the change in a currency pair in the forex market and is usually the fourth decimal point in a currency pair. All major currency pairs are priced to four decimal points. When trading it is important for traders to know the monetary value of a pip in order to be able to calculate potential losses or profits. This value is always in quote currency. 

The formula for calculating the monetary value of a pip is as follows:

Amount of base currency (in lots) x Decimal amount of pips.

What Is Margin & Leverage?

Two very important definitions in forex trading are Margin and Leverage.

Margin:  Margin is basically the amount of money that a trader needs to produce in order to place a trade and maintain the position. Margin is not a transaction cost, but more a security deposit which the broker holds while a forex trade is open. Trading currencies on margin enables traders to increase their exposure.

Leverage:  Leverage in Forex is the relation of the trader’s funds to the size of the broker’s credit. Basically, leverage is borrowed capital used to increase the potential returns. The Forex leverage size usually exceeds the invested capital for multiple times.

In order to understand how to manage an account, traders must have a good understanding of the leverage and margin level requirements offered by each forex broker as failing to properly manage both will result in a margin call and the broker will liquidate a traders position in order to ensure that their losses do not reach a level where their margin is insufficient to cover them. Leverage can work both ways: a traders’ profits can increase but so can their losses.

What is a Trading Account Vs a Trading Platform?

These are two very simple concepts which are easily confused.

  • A Trading Account: is the account that a trader opens with a chosen forex broker and this account will determine all the trading conditions which a trader must follow whilst trading using a trading platform. Here, traders can manage their funds, documents, and any offers the broker may offer.
  • A Trading Platform:  on the other hand, is the software which a trader will make use of to trade the markets. The most popular trading includes the Metatrader 4 and Metatrader 5 platforms which are generally available across desktop and mobile devices.

Further than these basics, most trading platforms are straightforward with order entries and the opening or closing of a positions and concepts like stop loss and take profit will sound very confusing to any beginner in the field.  Just to break down on the terminology – a Stop loss order works as a safety mechanism which puts a “cap” on the losses that can result from a bad trade and by entering the stop loss order, a trader specifies the maximum amount of unrealized losses that they are willing to tolerate. 

What Is Swap in Forex?

Swap is the interest which a trader pays or earns when a position is left open overnight. Swaps are usually presented in pips (as previously explained) per lots traded and vary among brokers and currency pairs. Some forex brokers offer swap free or Islamic accounts for traders usually from Islamic countries, as this is against their religion.

Here is our Pick of the Top 5 Forex Brokers perfect for Beginners.

IG Markets

IG

IG offers traders a wide-ranging list of tradeable products, outstanding trading and research tools, industry-leading education, and competitive rates.  IG‘s web trading platform is well designed, user-friendly and easy to customize making it perfect for beginner-traders to use.  IG is also well regulated by several bodies globally, including top-tier regulators like the Financial Conduct Authority (FCA) and the Federal Financial Supervisory Authority (BaFin).

IG offers the following education resources:

  • Demo account
  • Platform tutorial videos
  • General educational videos
  • Webinars
  • Live sessions

Is IG Safe?

IG is considered low-risk, and is a publicly traded company which operates a regulated bank, and is authorised by six tier-1 regulators (high trust), three tier-2 regulators (average trust), and one tier-3 regulator (low trust). IG is authorised by the following tier-1 regulators. IG is regulated by several bodies globally, including top-tier regulators like the Financial Conduct Authority (FCA) and the Federal Financial Supervisory Authority (BaFin).

Commissions & Fees:

IG provides traders competitive pricing across the board, regardless of the product chosen to trade.

  • Average spreads: For small and standard size contracts, minimum spreads on the EUR/USD were 0.6 pips, average spreads were 0.73 pips, for the end of November, 2019.
  • Active traders: For volume traders who qualify as professionals under EU rules, IG offers even more competitive rates on its commission-based offering, Forex Direct. 
  • Execution method: Forex Direct streams from interbank liquidity providers where IG acts as an agency broker – not adding on any additional spread. IG adds a commission to each trade made.

Platforms & Tools:

IG provides an outstanding offer of trading platforms and tools. 

Flagship platform: IG’s main trading platform is its proprietary web-based platform with usability at the centre of the experience. 

Charting: The default charts within the platform offers traders advanced functionality, including the ability to add an alert on a specific indicator, with a total of 28 studies available to select from.

Additional platforms:  IG offers the MetaTrader4 (MT4) platform and a L2 Dealer platform where Forex Direct and Direct Market Access (DMA) are available for share trading.

ProRealTime charts:   Via the ProRealTime premium charting more advanced charting with nearly 100 indicators is provided.

Customer Service

  • Average Connection Time: <1 minute
  • Average Net Promoter Score: 7.7 / 10
  • Average Professionalism Score: 8.2 / 10
  • Overall Score: 8.17 / 10
  • Ranking: 8th in 23 brokers

IG provides traders a large selection of quality market research from both in-house and third-party providers plus, a mobile app that comes packed with plenty of features.

Mobile app features include:

  • Tools: Alerts, sentiment readings, an economic calendar, watch lists, detailed market information and a well-designed layout.
  • Charting: The charting function is loaded with 28 technical indicators and drawing tools. 
  • Research: News content and signals from AutoChartist.
  • MetaTrader: MetaTrader is also available for traders who prefer the MT4 mobile app.

IG offers traders powerful research tools, competitive spreads and over 17,000 tradeable assets.

Cityindex best broker

City Index

City Index is an online broker which was founded in 1983 and offers Forex, CFDs and Spread Betting trading and traders can trade in over 12,500 instruments and over 100 currency pairs on the popular MT4 forex trading platform.  City Index also offer mobile apps for Android and iOS.

City Index offers a great range of education to beginner traders and options to improve trading skills include:

  • Demo account
  • Platform tutorial videos
  • General educational videos
  • Webinars
  • Quality educational articles
  • We liked the useful and high-quality platform tutorial videos. 

City Index is a global broker and has a head office situated in the UK and new traders will need to make a minimum deposit of $25 to make a start. City Index is authorised and regulated by the UK Financial Conduct Authority.

City Index Trading benefits:

  • Allows hedging
  • Offers STP
  • Low min deposit
  • Guaranteed stop loss
  • Offers Negative Balance Protection

City Index Trading Accounts on Offer include:

  • Demo account
  • Micro account
  • Mini account
  • Standard account
  • STP account
  • Managed account
xtb best broker

XTB

XTB is a trusted multi-asset broker regulated in several major financial centres and provides a well-rounded, competitive offering including excellent customer service and the xStation 5 trading platform.  XTB was founded in 2002 and is publicly-traded and regulated in one tier-1 jurisdiction, making it a low-risk broker for forex and CFDs trading. XTB is the top choice for 230,000+ Forex traders globally.  The company is regulated by several financial authorities worldwide, including the UK’s Financial Conduct Authority (FCA) and the Polish Financial Supervision Authority (KNF).

XTB offers beginner-traders a well-organized and clear education section in the form of written and video materials plus excellent trading platform tutorials.

XTB education materials include:

  • Demo account
  • Platform tutorial videos
  • General educational videos
  • Webinars
  • Quality eBooks and educational articles

Feature

XTB

Forex: Spot Trading

Yes

Currency Pairs (Total Forex pairs)

49

CFDs – Total Offered

1894

Social Trading / Copy-Trading

Yes

Cryptocurrency traded as actual

No

Cryptocurrency traded as CFD

Yes

XTB offers traders a Standard (for UK and Ireland residents only) and a commission-based Pro account and each account will come with its own execution method and spread model, in terms of commissions and fees.  The xStation 5 is the primary platform offering alongside the full MetaTrader 4 suite. Since xStation 5 does not support automated trading, MT4 must be used. A Mobile trading option is also on offer.

FXCM

FXCM

FXCM‘s excellent educational content is great for beginners and tools available include educational videos, and webinars. 

FXCM offers:

  • Demo account
  • Platform tutorial videos
  • General educational videos
  • Webinars
  • Quality educational articles

FXCM caters to multiple trader types including High-volume traders, algorithmic traders, and traders who appreciate robust trading tools and quality market research.

Is FXCM Safe?

FXCM is considered low-risk. FXCM‘s parent company is publicly-traded, does not operate a bank, and is authorised by three tier-1 regulators (high trust), two tier-2 regulators (average trust), and zero tier-3 regulators (low trust).  FXCM is regulated by top-tier financial authorities like the UK FCA and the Australian ASIC.

Commissions & Fees

FXCM stands out the most in regards to its Active Trader account offering, where low commission rates and average spreads provide competitive pricing for high volume traders.  Active Trader accounts are available for clients who deposit at least $25,000, which comes with a lower commission rate of $25 per million and access to premium research.  Standard account holders are only charged the prevailing spreads, Active Trader accounts are charged a commission per trade, in addition to reduced prevailing spreads.

Platforms & Tools

FXCM offers a growing range of trading platforms and tools including: 

  • Trading Station desktop: FXCM’s flagship trading platform, caters well to forex traders of all skill levels. 
  • Trading Station web: The web version of Trading Station features includes news, videos, research, market data signals, and links to external resources. 
  • Ninja Trader:  Features numerous trading tools, including automated trading capabilities. 
  • Algorithmic Trading: The FXCM App store provides various add-ons, technical indicators, and automated trading robots. 

Customer Service

  • Average Connection Time: <1 minute
  • Average Net Promoter Score: 8.3 / 10
  • Average Professionalism Score: 9.2 / 10
  • Overall Score: 8.77 / 10
  • Ranking: 3rd in 22 brokers

FXCM provides a wide variety of market research and related resources. A combination of Trading Station and MetaTrader4 (MT4), FXCM delivers a reliable, feature-rich mobile offering for forex traders.

Tickmill

TickMill

TickMill offers traders 2 basic account types, accessible through the popular MetaTrader 4 platform and offers market execution with average speed of 0.3 seconds, variable spreads, leverage up to 1:30 and micro tradeable lots. Tickmill Ltd is regulated as a Securities Dealer by the Seychelles Financial Services Authority (FSA).

Tickmill publishes webinars and seminars to help beginner traders get their start in the market and has also made available a detailed eBook. Additionally, the analysis blog and TradingView analysis tools offer a new perspectives on currency markets.

At Tickmill, Traders can learn in the following ways:

  • Demo account
  • General educational videos
  • Platform tutorial videos
  • Webinars
  • Quality educational articles

The Classic account is commission-free and The Pro ECN carries a charge of a small commission fee and get tighter spreads.

Account type

Minimum deposit 

Minimum trade size

Maximum leverage

Spreads (& Commission)

Classic

$100

0.01

1:30

From 1.6 pips

Pro

$100

0.01

1:30

0.2 pips + $4 / Lot*

 *Commission is calculated per standard lot of 100 000 units round trip.

TickMill supports the MetaTrader4 (MT4) platform, available for Mac/Windows PC, Android & iOS devices and as a web-based version and accepts a wide range of payment methods: via credit/debit cards, (Visa, MasterCard, Maestro), bank wire, Skrill, Neteller, dotpay, and Sofort.

In Conclusion

Choosing a broker is not that simple and traders should always take the time to look at the currency trading software and platforms a broker has on offer. Traders must also be able to trust not only the accuracy of the quoted prices but also the speed of data transfer and the fast execution of orders is essential to be able to trade Forex successfully. All of this information must be made available from a broker in real-time and the platform must be available at all times when the Forex