How to Trade Forex: Beginner’s Guide
What is Forex?
Forex (foreign exchange) is the global marketplace where currencies are traded against one another, operating 24 hours a day, five days a week. When trading forex, you're always dealing with currency pairs—buying one while selling another—with the goal of profiting from exchange rate fluctuations. Most traders engage in forex trading with forex dealers (Registered Foreign Exchange Dealers in the US) that allow them to speculate on currency movements using leverage without taking physical delivery, providing opportunities to capitalize on both rising and falling markets with relatively small amounts of starting capital.
Open a Forex Account
To trade spot forex in the US, you’ll need to open a forex trading account at a registered dealer (RFED). tastytrade customers with an individual account can apply for a forex account with tastyfx directly from the tastytrade web platform and access 80+ currency pairs with their existing tastytrade credentials. Simply navigate to the ‘Manage’ tab of the platform and click ‘open tastyfx account’ from the tastyfx card.
Learn the Basics of Forex Trading
Understanding the fundamentals of forex trading is essential before risking any capital. Learn how the forex market works and build a solid foundation.
Key Forex Concepts
- Currency Pairs: Research available currency pairs to trade and understand implications of the BASE/QUOTE pair structure
- Pips and Lot Sizes: Pips are the unit of movement (often 0.0001) and 1 standard lot = 100,000 units of the base currency
- Bid/Ask Spreads: The difference between the buy and sell price in a currency pair, and your only cost to execute a trade
- Market Structure: forex trading is done over-the-counter, not on an exchange like US stock exchanges. Forex customers execute their trades against their forex dealer.
- Trading Sessions: forex markets are open 24/5, but European, Asian, and US participants provide liquidity at different times of the day
- Charting: reading candlestick charts and understanding technical indicators can be helpful in understanding price action
- Leverage and Margin Requirements: Major pairs offer as much as 50:1 leverage, meaning only 2% of the position is required in margin deposits
- Order Types: utilizing market, limit, stop-loss, and take profit orders can help improve trade precision
Select Currency Pairs
Focus on a select group of currency pairs rather than trying to trade the entire market.
Popular Markets to Consider
- Major US dollar pairs: EUR/USD, GBP/USD, USD/JPY, USD/CHF
- Commodity currency pairs: USD/CAD, AUD/USD, NZD/USD
- Cross-currency pairs: EUR/GBP, EUR/JPY, GBP/JPY
- Exotic pairs: USD/TRY, EUR/PLN, USD/ZAR
Beginners often start with Major US dollar pairs because they offer lower spreads (transaction costs), higher liquidity (easier entry/exit), and historically less unpredictable price swings. Once you've gained experience, you can expand to other pairs that match your trading style and risk tolerance.
Develop a Trading Plan
A comprehensive trading plan is your roadmap to forex success. It should consider:
- Trading goals (income, wealth building, etc.)
- Time commitment (day trading, swing trading, position trading)
- Risk management rules (position sizing, max daily loss)
- Entry and exit criteria
- Markets and timeframes to focus on
- Trading strategies to employ (fundamental/technical analysis)
- Performance analysis and adjustment
Document your plan in writing and commit to following it consistently. A well-defined plan helps remove emotional decision-making and provides structure to your trading activities.
Open Your First Forex Trade
When you're ready to execute a real trade:
- Select your currency pair
- Determine position size based on risk management rules
- Choose direction (buy/long or sell/short)
- Set entry price (market or limit order)
- Consider attaching a stop-loss order to define risk
- Set a profit target or an exit strategy
- Review all parameters before submitting
Monitor and Close Your Positions
Active position management is crucial for forex trading success:
- Monitor open positions regularly
- Track price movements against your plan
- Adjust stops to lock in profits when appropriate
- Have clear exit criteria (profit targets, time-based, indicator signals)
- Record and analyze results
You can close positions by:
- Letting them hit predetermined take-profit or stop-loss levels
- Manually closing at market price when conditions change
- Using trailing stops to capture trends
- Partially closing your position in increments over time
After closing trades, review your performance objectively to identify strengths and areas for improvement.
Remember that consistent profitability in forex trading takes time and practice. Focus on preserving capital and learning from each trade rather than making quick profits. With discipline, patience, and continuous education, you can develop the skills needed for long-term trading success.
Forex Trading Examples
Buying EUR/USD
In this example, EUR/USD is trading at 1.12452, with a buy price of 1.12456 and a sell price of 1.12448, giving it a spread of 0.8 pips. You anticipate that the euro will strengthen against the dollar, so you decide to execute a buy order at 1.22456.
Remember that position size in forex is measured in lots, with each standard lot representing 100,000 units of the base currency (the first currency in the pair). In this case, purchasing a single lot of EUR/USD means exchanging €100,000 for $122,456. You opt for a two-lot position, creating a total position value of $244,912. This means your position will gain or lose $20 for every pip of movement (0.0001). This is referred to as your pip value.
Forex markets operate on leverage, which means you don't need to deposit the full value of your trade upfront. EUR/USD has a margin requirement of 2%, meaning you only need to commit $4,898.24 in buying power for this position.
Selling USD/CAD
For another example, suppose USD/CAD is trading at 1.36740, with a buy price of 1.36748 and a sell price of 1.36732, giving it a spread of 1.6 pips. You anticipate that the US dollar will weaken against the Canadian dollar, so you decide to execute a sell order at 1.36732.
When trading USD/CAD, the US dollar is the base currency, with a price quoted in Canadian dollars. So, selling a single lot of USD/CAD means you're selling $100,000 to receive C$136,732. You opt for a 0.5 lot position, creating a total position value of $50,000 (or C$68,336). This means your position will gain or lose C$10 for every pip of movement (0.0001), which equals approximately $7.31 at the current exchange rate. This is referred to as your pip value.
USD/CAD also has a margin requirement of 2%, so this position only requires a margin deposit of $1,000.
FAQs
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Forex trading offered by tastyfx LLC, ("tastyfx") is an affiliate company of tastytrade, Inc. ("tastytrade"). Both companies are under common control through IG US Holdings, Inc. tastytrade and tastyfx are separate legal entities, have separate businesses and are not responsible for each other’s products, services, or policies.
tastyfx does not charge commissions. tastyfx is compensated through a hedging arrangement with IG Markets Ltd.
Past performance is not necessarily indicative of future results. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. Losses can exceed deposits. We advise you to carefully consider whether trading is appropriate for you based upon your personal circumstances as you may lose more than you invest. The information presented does not consider your personal investment objectives, financial situation, and/or needs and is not suitable for getting professional advice from a qualified person, firm, or corporation, where required. You are advised to perform an independent investigation of any transaction you intend to execute in order to ensure that transaction is suitable for you.