How to Start Forex Trading from Home: Beginner's Guide

Want to start Forex Trading from home? The bad news is that... You have to study. Currency trading is certainly not child's play. The good news is that, aside from studying, it's an activity that everyone can potentially engage in profitably. In this article, starting from scratch, we'll illustrate the basics (and some details) of Forex Trading from home, offer tips to avoid common mistakes, and list the fundamental steps to becoming an efficient Forex trader.

What is Forex?

Forex is the contracted form, or "portmanteau" if you prefer, of Foreign Exchange Market. It is, in fact, the market where currencies are bought and sold. Its peculiarity is that currencies are considered like any other commodity. Just as you can trade houses, cars, or any other type of goods, you can trade currencies. Obviously, currencies are bought with other currencies, so they are found in pairs. For example, if you want to buy dollars by paying in euros, you'll have to refer to the euro-dollar pair, known as EUR/USD. The mechanism is not very different from the one that allows you, once arrived in a foreign land, to convert money into the local currency. Of course, in this case, there is a big difference: in Forex, it's done with high volumes and, above all, to produce a profit. How is profit produced in Forex Trading? It's very simple: with the surplus. For example, if you buy dollars today by paying in euros, and tomorrow the euro-dollar exchange rate changes in favor of the dollar, once you reconvert your American "nest egg" into euros, you will have made a profit. Put this way, it's true, it seems very simple. It's only the mechanism that is simple. Making a profit, in reality, is rather difficult. The reason for this lies in the fact that the currency market is volatile, meaning the value of currencies, and therefore the quotation of pairs, changes continuously and does so in a way that seems unpredictable. Be careful, "seems": there are tools that, with a certain degree of approximation, allow you to understand the direction of prices in advance, if not even their magnitude. These tools analyze all the factors at play, which are both internal and external to the market, and form the disciplines of technical analysis and fundamental analysis. The Forex market is one of the most frequented in the world for a whole series of reasons. First, it is easily accessible. The access catalysts are the so-called brokers, which are companies that provide platforms with a comprehensible interface and handle the execution of buy and sell orders, as decided by trader-users. Secondly, the Forex market never "almost" closes. It is open 24 hours a day, 5 days a week. This means that it is possible to invest and earn at almost any time. Finally, it is the most liquid market in the world, meaning it's the one where the most significant amount of money circulates. Just to give an idea, think of the "volume" generated by the EUR/USD pair: 3,000 billion dollars a day, more than the entire Italian public debt.

Forex Terminology

It's impossible, in a single article, to provide a complete Forex glossary. However, we can list the most important terms, the ones that even the greenest beginner is called upon to know. If you don't know even one of the following terms, the advice is to postpone (to a distant date) your debut in the market. Exchange rate. It is the ratio between currencies. For example, if the EUR/USD exchange rate is at 1.170, it means that 1.170 dollars are needed to buy 1 euro. Pair. EUR/USD is a pair, GBP/EUR is a pair. Each currency corresponds to an abbreviation (EUR for euro, USD for dollar, GBP for pound, JPY for yen, etc.). Pip. It is the smallest unit of measurement in Forex. When the exchange rate... changes, it cannot do so at a rate lower than a pip. For example, EUR/USD can go from 1.170 to 1.701. Broker. It is the company that offers the brokerage service. In addition to offering a platform from which to issue orders, view and study charts, and much more, it materially executes the orders. Bid, Ask, Spread. The concept is a bit complicated. The so-called market maker brokers, in addition to allowing the execution of orders, "cover" it: if on the other side there is no ready counterparty (e.g., you are selling but there is no one buying), it is the broker itself that interprets it. In this case, there is a difference between the real price (Ask) and the price imposed by the broker (Bid). It may seem like a rip-off but it's not: the difference, called Spread, is in fact the legitimate profit of the broker, who generally - in fact - does not ask for commissions. In any case, the Spread is always declared by the broker. Long. Going "long" on a pair, for example EUR/USD, means buying euros and selling dollars. Short. Going "short" on a pair, for example EUR/USD, means buying dollars and selling euros. Lot. It is the minimum investment that a trader can make. Generally, there are submultiples of 0.10 and 0.01. The standard lot is 100,000 units of currency, but with submultiples (mini-lots and micro-lots respectively), it goes down to 10,000 and 1,000. Leverage. Fortunately, you are not forced to commit at least 1,000 euros at a time. There is leverage, which is a multiplier that allows you to invest as if you had much more capital. For example, if you use a 10:1 leverage, by investing 100 euros you can produce the effects of a 1,000 euro investment. Platform. It is the software, often in the form of a broker, that allows users to trade. It is often created directly by the broker, but much more frequently it is the prerogative of third parties. The most famous platform is MetaTrader 4. Economic Calendar. It is the list of scheduled economic events, specifically events capable of influencing exchange rates. Market Mover. This term indicates precisely the events capable of influencing the exchange rate. Technical Analysis. It is the practice that allows anticipating the market (price and direction) through the study of the chart. Fundamental Analysis. It is the practice that allows anticipating the market (price and direction) through the study of economic events (i.e., market movers).

How to Start Forex: A To-Do List

Below are the steps that should take you from the status of absolute beginner to that of a trader (albeit inexperienced... The road to earning is long, very long!). Theoretical study. Forex Trading is a complex activity, because the market and its dynamics are very complex. First of all, therefore, a theoretical study path is required. Unfortunately, there are no Forex universities, but at least there is no shortage of material: books, e-books, online courses, even blogs and forums. Everything is useful when starting from scratch. Choosing a broker. The first step, once you have understood how Forex works, is to choose a broker. Aim, at least initially, for the most famous names. Keep in mind, however, that a good broker must be honest, inexpensive, and offer at least a sufficient level of assistance. Practice. You can practice without risking losing your capital. The tool is the demo account, which allows you to trade in the money market but with fake money. Almost all brokers offer a demo account. Developing a strategy. This is the most difficult part. Before committing capital, you must be sure of what you are going to do. You must have decided which pairs to work on, what type of technical or fundamental analysis to practice, how much money to spend per single order, and so on.