13 forex trading tips for all traders

Read our forex trading tips to learn how successful traders operate, and how to get started on the currency markets.

1. Make a forex trading plan
2. Choose your forex trading style carefully
3. Start out with a demo account
4. Learn how leverage works
5. Pick your pairs before you start
6. Don’t risk too much too early
7. Start simple
8. Always use a stop-loss order
9. Manage your capital
10. Track your progress
11. Fundamentals, technicals or both?
12. Let profits run, and cut losses early
13. Know when to stop

Forex trading tips

1. Make a forex trading plan

One of the best things you can do to ensure that you start trading forex successfully is to make a comprehensive plan before you even consider opening your first position.

The more information you include in your forex trading plan, the better. You should think about why you’ve decided to trade forex, plus what your goals are and when you want to achieve them. It’s also worth setting out when you’re going to be able to devote time to the markets, how long you want to keep positions open for, how you’re going to trade forex and more.

We’ll go into some of these in more detail in our other tips.

2. Choose your forex trading style carefully

There are four main styles of forex trading, categorised by how long you keep your positions open:

• The shortest is scalping, where you hold trades for minutes or even seconds at a time. The moment a position turns against you by even a couple of pips, you close it
• In day trading, you aim to close all your positions by the end of the session. That means keeping them open for minutes or hours at a time
• Next up is swing trading, where you hold positions for days or weeks, aiming to capture profits from the smaller trends within wider moves

Finally, position traders keep their trades open for weeks or months at a time, looking to take advantage of major trends

In general, shorter-term styles are more favoured by FX traders, but all are valid if you have the right conditions. You might want to try a few out and see what fits your plan best.

3. Start with a demo account

Speaking of trying things out, we’d always recommend that beginner traders start with a forex trading demo account before they commit real capital. That way, you can ensure that any early mistakes are made in a simulated environment that won’t end up costing you money.

Most trading demos use real market pricing, so they’re as close as possible to real trading – the main difference being that all your funds are virtual. Even once you’ve upgraded to a live account, it is a good idea to keep your demo to test out new strategies.

4. Learn how leverage works

Leverage is fundamental to forex trading – without it, you’d have to commit huge amounts of capital to earn a return. However, it is important to understand the effect that leverage has on your profits and losses.

When you trade using leverage, your provider is in effect lending you the additional funds needed to cover the full size of your position. This means that your profits and losses will be based on the position’s full value, magnifying both. It also means that your positions could be at risk of being closed automatically if you don’t have the margin required to keep them open.

Learn more about how leverage works with our beginner’s guide to FX.

5. Pick your pairs before you start

With a plan in place, a style in mind and some practice under your belt, you can begin thinking about placing your first live trades. With dozens of FX pairs to choose from, though, deciding where to start can be tricky.

Often, it’s a good idea to choose one or two pairs to begin with, so you can maintain focus. When choosing your pairs, here are a few points to consider:

• Liquidity. Highly liquid pairs are usually better to trade, as they’ll have lower costs and smoother price moves. The major pairs like EUR/USD, GBP/USD and USD/JPY tend to be the most liquid
• Timings. Forex is a 24-hour market, but liquidity for individual currencies will rise and fall throughout the day as different sessions open and close. So, choose a market that fits your FX trading hours
• Familiarity. Try to choose currency pairs that you already know and understand, as there are lots of factors that will move each market

6. Don’t risk too much too early

While you’re still setting out, you don’t want to risk blowing your entire account on a single bad trade. You can avoid this eventuality easily enough by limiting the capital you allocate to your positions.

The standard FX trade size is one lot, which will give you a large exposure and can see losses mount up quickly. Look for a provider that enables you to trade in smaller sizes – with City Index, you can set your own sizes outside of traditional lots and mini lots.

7. Start simple

Another key consideration when you’re still in the early days of trading is not to take on too much too soon. Opportunities abound in the FX markets, but successful traders know which ones to seize and which ones to let go.

It’s best to begin by only having one trade open at a time, giving yourself enough time to properly process each position before opening another. Otherwise, emotions can begin to cloud your judgement.

You might also want to pick a small selection of technical indicators to begin with, too. Usually, using more than one is recommended to avoid false signals.

8. Always use a stop-loss order

Risk management might be the most important factor in dictating your long-term forex trading success – and the basic building block of any risk management strategy is the stop-loss order.

Stop losses are instructions to your trading provider to close your open position if it moves a certain number of points against you. They are useful for ensuring that your positions don’t incur running losses. You can even use more sophisticated types of stop, such as:

• Guaranteed stops, which can’t be affected by slippage (when a market gaps over your chosen stop level, meaning it executes at a worse price)
• Trailing stops, which follow your position if it earns a profit, then lock in if it turns against you

Limits (also known as take profits) are also a useful tool, automatically closing your trades when they hit your profit target.

9. Manage your capital

Another key factor in controlling risk is to manage the money you’re allocating to any given position. Many successful traders stick to the 1% rule, which involves only ever risking 1% of your total funds on any given trade. If, for example, you have £5,000 in your account, your total risk on any position would be £50.

It’s also worth evaluating your risk-reward ratio, which dictates how much potential profit you want to target compared to your total risk. The higher your ratio, the fewer successful trades you’ll need to be profitable. However, you’ll also find fewer opportunities, so finding a good balance is key.

Many traders use a risk-reward ratio of between 1-2 and 1-3.

10. Track your progress

Making a plan is an excellent start, but to truly trade like an expert you’ll want to keep meticulous records about your progress – noting down the outcome from every position and keeping track of the factors that made it a success or a failure.

Luckily, you don’t have to do this all manually. Your City Index account comes with free access to Performance Analytics, which will report on your positions as you trade. You can use it to track how closely you’re sticking to your plan, and which conditions suit you best.

11. Fundamentals, technicals or both?

There are two main ways that traders analyse the financial markets:

• Fundamental analysis involves looking at the economic factors surrounding a currency, such as central bank statements, money flow and inflation

Technical analysis involves looking at an FX pair’s price chart, using indicators and patterns to determine where it is headed next

Your choice between the two will dictate how you navigate the markets, and which opportunities you’ll trade. You don’t have to stick to one of the other, though – many successful traders build an approach that works in both methodologies.

If you’re primarily a technical trader, for example, then you risk being blindsided by market volatility if you ignore the news surrounding a currency. By incorporating fundamental analysis into your strategy too, you can lower your overall risk.

12. Let profits run, and cut losses early

Letting profits run and cutting losses is an oft-repeated mantra among traders, and with good reason. For beginner traders, it can be hard to put into action – when you see a trade in the green, it can be tempting to close it immediately and realise the profit. Similarly, accepting a loss can a tricky skill to master.

If you can stick to your plan in the heat of the moment, however, chances are you’ll find your success rate starts to climb.

13. Know when to stop

Finally, know when it’s time to exit your trading platform and call it a day. Trading can be emotional, and emotions will cloud your judgement: even positive ones. So, after a string of successful or losing trades, make sure to take a step back and evaluate whether it’s time to log off.

It may also be time to stop trading entirely, for a few weeks or indefinitely. Your plan should help you here – are you still working towards your goals?

Forex trading tips FAQ

What are the best forex trading strategies?

The best forex trading strategies for you will all depend on your trading plan, chosen markets and timeframes. If you’re a position trader looking to take advantage of major moves, for example, you might prefer trend trading. On the other hand, scalpers who are looking to trade at a high frequency might decide to look for breakouts instead.

How do I start trading forex?

To start trading forex, you just need to open an account with a provider like City Index and deposit some funds. However, if you’re just starting out, we’d recommend completing an educational course and trading on a demo account first.

What are the best forex pairs to trade?

There’re no set best forex pairs to trade, it all depends on you as a trader. However, for beginner traders the majors are often a popular starting point – or read our FX pairs guide for some more ideas.