So you’ve got a idea of what it’s all about and want to have a try – but you know you’re nowhere near ready to use real money.

What we’ll do is run through on the basics, (with as little jargon as possible) and then you ready can go off and get a forex practice account, where you try it out for free – no real money involved, so you can’t lose anything.

1. Exchange Rates

You know about currency exchange rates: eg. a dollar is worth about 1.34 euros, and you know this rate varies from day to day.

In forex, a currency is given a 3 letter currency code, always capitals.

US dollar = USD, the euro = EUR,

The exchange rate is expressed using a currency pair and a value.

EUR/USD = 1.3403

1 euro would buy you 1.3403 US dollars.
If this value goes up, the euro is stronger than dollar.
If it goes down, the dollar is stronger than the euro.

Obviously, which way round the currency pair is written affects all this – USD/EUR would swap everything over (the reciprocal). For now, don’t worry, for our purposes it’s going to be written EUR/USD and there are a few conventions to make sure everyone is working to the same plan.

The base currency is the first one written, here EUR – the quote currency is the second one, USD.

Pips
Most currency pairs consist of five significant digits and most of them have the decimal point immediately after the first digit, EUR/USD = 1.3403

Here, one pip = the fourth decimal place, 0.0001 or 1 ten-thousandth.
If the price moves up from 1.3403 to 1.3404, it’s gone up 1 pip

One major exception – Japanese yen, where it’s about 100 yen to the dollar – so for example, if the USD/JPY pair = 101.35 then 1 pip = 0.01 – the 5th significant digit, but the 2nd decimal place.

Instead of saying the Malaysian ringgit went up 0.033 of a percent against the Norwegian krone this afternoon, traders can just say it went up 33 pips. Makes life easier…
And, don’t worry, the trading platform will do the calculations into pips for you.

2. A forex practice account

There’s a whole heap of sites that offer forex services on the internet. Called forex brokers or forex dealers, they offer practice/demo accounts, because:-

• It’s a bit scary to do it with real money immediately.
• They want you to sign up with them when you do start using real money.

Some practice accounts are very similar to the real service that forex broker offers – some are a good way off the real thing. So don’t even think about having a go with real money yet, and later, don’t think just because you can do it on the demo, you can do it for real.

Some use a web-based platform, so you’ll be looking at a page in your browser, others require you to download a program to your desktop, install it, and go from there.

They’ll want some info from you, name, address, phone number – they won’t require a credit card number, or other payment details, for a practice account. (If you ever try to sign up for a forex practice account and the site demands a credit card number – walk away).

Some sites offer services to US residents only, some are for EU residents only, others are open to all – nothing to do with the trading, it depends how they operate in their local jurisdiction and how they are regulated. Otherwise, at this point it doesn’t matter who you choose, (come back later and try other sites’ practice accounts to gain more experience).

So, click on a site, get set up, and then we can get going with making your first practice trade.

So you’ve got a idea of what it’s all about and want to have a try – but you know you’re nowhere near ready to use real money.

What we’ll do is run through on the basics, (with as little jargon as possible) and then you ready can go off and get a forex practice account, where you try it out for free – no real money involved, so you can’t lose anything.

1. Exchange Rates

You know about currency exchange rates: eg. a dollar is worth about 1.34 euros, and you know this rate varies from day to day.

In forex, a currency is given a 3 letter currency code, always capitals.

US dollar = USD, the euro = EUR,

The exchange rate is expressed using a currency pair and a value.

EUR/USD = 1.3403

1 euro would buy you 1.3403 US dollars.
If this value goes up, the euro is stronger than dollar.
If it goes down, the dollar is stronger than the euro.

Obviously, which way round the currency pair is written affects all this – USD/EUR would swap everything over (the reciprocal). For now, don’t worry, for our purposes it’s going to be written EUR/USD and there are a few conventions to make sure everyone is working to the same plan.

The base currency is the first one written, here EUR – the quote currency is the second one, USD.

Pips
Most currency pairs consist of five significant digits and most of them have the decimal point immediately after the first digit, EUR/USD = 1.3403

Here, one pip = the fourth decimal place, 0.0001 or 1 ten-thousandth.
If the price moves up from 1.3403 to 1.3404, it’s gone up 1 pip

One major exception – Japanese yen, where it’s about 100 yen to the dollar – so for example, if the USD/JPY pair = 101.35 then 1 pip = 0.01 – the 5th significant digit, but the 2nd decimal place.

Instead of saying the Malaysian ringgit went up 0.033 of a percent against the Norwegian krone this afternoon, traders can just say it went up 33 pips. Makes life easier…
And, don’t worry, the trading platform will do the calculations into pips for you.

2. A forex practice account

There’s a whole heap of sites that offer forex services on the internet. Called forex brokers or forex dealers, they offer practice/demo accounts, because:-

• It’s a bit scary to do it with real money immediately.
• They want you to sign up with them when you do start using real money.

Some practice accounts are very similar to the real service that forex broker offers – some are a good way off the real thing. So don’t even think about having a go with real money yet, and later, don’t think just because you can do it on the demo, you can do it for real.

Some use a web-based platform, so you’ll be looking at a page in your browser, others require you to download a program to your desktop, install it, and go from there.

They’ll want some info from you, name, address, phone number – they won’t require a credit card number, or other payment details, for a practice account. (If you ever try to sign up for a forex practice account and the site demands a credit card number – walk away).

Some sites offer services to US residents only, some are for EU residents only, others are open to all – nothing to do with the trading, it depends how they operate in their local jurisdiction and how they are regulated. Otherwise, at this point it doesn’t matter who you choose, (come back later and try other sites’ practice accounts to gain more experience).

So, click on a site, get set up, and then we can get going with making your first practice trade.

We’d suggest Easy Forex if you are resident in the US, and eToro.com for all other locations.

3. Making a trade

“I think the euro will be stronger than the dollar this afternoon, I’m reckoning that EUR/USD price will go up.”

So what I want to do is make a ‘trade’ – I’m going to buy EUR/USD

If I thought it was likely to be the other way round, dollar stronger than euro, I would sell EUR/USD.

In the practice account, you’ll find a button and a form to fill in to make a trade.

1. Which currency pair – pick one, maybe EUR/USD, whatever…

2. Buy or sell? – you choose, toss a coin if necessary.

3. How much to trade? – use the smallest percentage of your balance it will accept, but it really doesn’t matter how much, it’s practice.

4. Leverage – sometimes called ‘risk level‘ – set this to the lowest it will go.

5. Take profit
6. Stop loss

These last 2 are often filled in for you on a practice account – and are displayed in money amounts or pips. Go with the prefilled values or invent some. If the price of the pair hits either value, the trade is closed – to give you your profit, or stop you losing even more.

Don’t worry – nothing bad can happen. Click to set it going and watch what does happen.
Numbers, they might go up or down, doesn’t matter, watch the graphs. Just get the feel of it all.

If your first trade closes, (ie. it all switches off) set another trade going, then go back, look at the charts and prices and try to figure out why it closed – it’ll be to do with the take profit or stop loss…

Just play – when you’re ready, come back here and we’ll get started with some detail on forex trading.