How To Get Started Trading the Forex Market

Education

If you are completely new to forex, this article is written specifically for you. We are going to cover everything from pips and lot sizes to order types, candlestick charts, and economic news — the foundational knowledge you need before placing your first trade.

Pips and Ticks

Before you can read price or calculate risk, you need to understand how forex prices are quoted.

A pip (percentage in point) is the 4th decimal place in a currency pair's price quote. A tick is the 5th decimal place. These are the smallest units of price movement in the forex market, and understanding them is essential for calculating spreads, stop distances, and profit targets.

To put it simply, a pip (percentage in point) is the 4th decimal place in a price quote, and a tick is the 5th decimal point in a price quote for most currencies.

The only exception to this rule is in Yen pairs where the quote currency is the Japanese Yen. See our diagrams below for an even clearer explanation.

Because the Yen has a much lower value relative to other major currencies, the decimal structure shifts. The pip falls at the 2nd decimal place, and the tick at the 3rd. Keep this in mind any time you are trading USD/JPY, EUR/JPY, GBP/JPY, or any other yen pair.

Bid, Ask, Spread and Commissions

If you have traded any other market before, you will likely be familiar with bid, ask, and spread. If not, here is a clean breakdown.

The bid is the highest price a buyer is willing to pay for an asset at any given moment — the demand side of the market.

The ask is the lowest price a seller is willing to accept at any given moment — the supply side of the market.

The spread is the gap between the two. It is effectively the cost of entering a trade, and it varies depending on the instrument, the broker, and current market conditions. Highly liquid pairs like EUR/USD tend to have very tight spreads. Less liquid instruments — exotic pairs, low-volume stocks, certain cryptocurrencies — can have wide spreads that eat into your edge before you even begin.

The price displayed on your chart is always the bid price. So if EUR/USD is showing 1.10556, that is the bid. The ask will be fractionally higher by the amount of the spread.

Spread can technically be calculated by subtracting the bid from the ask, but in practice your trading terminal will display it automatically. Tools like Magic Keys and Trade Assistant for MT4/MT5 handle this in real time.

Commissions are separate from spread and are charged by your broker on a per-lot basis. If your broker charges $5.00 round-trip per lot and you enter a 5 lot position, $25 is deducted from your account at the point of entry. Always factor commissions into your risk calculation — they are a real cost.

One important note: some brokers advertise zero fees or zero commissions. In most cases they are simply embedding their cost into wider spreads. The fee is still there — it is just less visible. Stick to regulated, well-reviewed brokers with transparent fee structures. A good starting point for broker research is Forex Peace Army, which aggregates verified trader reviews.

Margin Trading and Leverage

Currency pairs move in small increments relative to other asset classes. To make those movements meaningful from a profit and loss perspective, forex brokers offer leveraged margin accounts — essentially allowing you to control a much larger position than your account balance would otherwise allow.

Leverage is a tool, not a strategy. Used correctly with disciplined position sizing it allows you to trade effectively with a reasonable account size. Used carelessly it is the fastest way to blow an account. Understanding lot sizes and calculating your position size correctly before every trade is non-negotiable.

Lot Sizes and Position Sizing

A lot is the standard unit of measurement for a forex trade. Here is how the sizing breaks down:

Lot Type · Lots · Currency Units · $ Per Pip

Standard Lot · 1.00 · 100,000 · $10.00

Mini Lot · 0.10 · 10,000 · $1.00

Micro Lot · 0.01 · 1,000 · $0.10

Nano Lot · 0.001 · 100 · $0.01

The key principle is this: your position size should always be determined by your risk — not the other way around. Decide how much of your account you are willing to lose on the trade, identify where your stop loss sits, calculate the pip distance, and then use a position size calculator to find the correct lot size. Never size a position based on how much you want to make.

Order Types

There are eight order types available in the forex market. Understanding each one is important — using the wrong one at the wrong time is a common and costly beginner mistake.

Market Orders execute immediately at the current price. If you are entering long, you fill at the ask. If short, at the bid. This is fast and direct, but requires experience and discipline — it is easy to overtrade when entries are instant. Best reserved for traders who are comfortable timing their entries and have the self-control to not fire off positions impulsively.

Limit Orders are placed at a specific price level and will only fill when price reaches that level. This is the most beginner-friendly order type because it forces patience — the market has to come to you. Your entry price is defined in advance, which also makes risk calculation cleaner. If you are new, start here and stay here until limit orders become second nature.

Stop Limit Orders trigger a limit order when price reaches a specified level from the opposite side — most commonly used by breakout traders. At PTM we rarely use this order type in forex. The market's tendency to whipsaw and grab liquidity makes stop limit entries particularly vulnerable to being triggered at the worst possible moment.

Stop Loss Orders are the most important order in your toolkit. A stop loss defines exactly how much you are willing to lose on a trade before the position is automatically closed. It is not optional. There is no scenario — none — in which you should be in a live trade without a stop loss attached.

You may adjust a stop loss in the direction of your trade as it moves in your favour. You must never move it further away from your entry to avoid being stopped out. That habit is one of the leading causes of large, account-damaging losses in new traders.

Take Profit Orders allow you to define your exit in advance. There are four ways to exit a position profitably: close the full position manually, let price hit a pre-set full take profit level, close a partial position manually, or use partial take profit levels. Which approach you use will depend on your strategy and the specific trade — but having a plan for your exit before you enter is just as important as your entry criteria.

Long and Short Positions

A long position is a buy — you are purchasing the base currency against the quote currency. You profit when price moves up from your entry, and lose when it moves down. If your stop loss is 3 pips below your entry and price moves 15 pips in your favour before you exit, that is a +5R trade — you made five times what you risked. If price falls and hits your stop, that is -1R.

If price falls and hits our stop loss, that is considered -1R. See the long position diagram below for reference.

A short position is a sell — you are selling the base currency and buying the quote currency. You profit when price moves down from your entry. The R-multiple logic is identical: a 15 pip move in your favour against a 3 pip stop is still +5R.

If you trade the stock market, you may be familiar with shorting which is characterized as borrowing shares of a stock or equity from your broker (usually at a premium or with higher fees and limitations) to sell short, this in principle is the same as when we take a short position (sell) in the currency markets.

In the stock market, shorting requires borrowing shares from your broker — often at a premium, with additional fees and restrictions. In forex, going short is simply the other side of a standard trade. There are no additional requirements. Long and short are treated equally, which is one of the reasons forex suits traders who want genuine two-directional opportunity.

Reading Japanese Candlestick Charts

Once you understand pips, lots, and order types, the next fundamental skill is reading Japanese candlestick charts. A line chart shows you the closing price over time — useful for a basic overview, but limited. A candlestick chart shows you the open, high, low, and close for every interval, giving you a far richer picture of what price is doing and how buyers and sellers are interacting within each period.

Learning to read individual candles is only the beginning. The real skill is reading candles in sequence — understanding what the market is communicating through the pattern of movement across multiple candles. This is the foundation of price action trading.

Basic Supply and Demand

With candlestick reading as your base, you can begin identifying supply and demand zones — areas on the chart where significant buying or selling previously occurred and where price is likely to react again. At PTM, supply and demand analysis is the core of our methodology. Rather than relying on lagging indicators, we read price directly and identify the levels where institutional activity has left its mark.

Market Structure

Market structure is the framework that tells you whether a market is trending up, trending down, or ranging — and therefore which direction you should be biased toward on any given instrument. Trading without understanding market structure means trading without context. You may get lucky occasionally, but you will not be consistent.

A full breakdown of market structure is covered in its own dedicated article. If you haven't read it yet, we recommend doing so before going further.

Multi-Timeframe Analysis

No single timeframe tells the full story. At PTM we conduct top-down analysis across multiple timeframes — weekly and daily for the macro picture, 4-hour and 1-hour for refining levels and identifying trade opportunities, and the 15-minute or lower for precise entries.

The logic is simple: you cannot reliably understand what is happening at the micro level without first understanding what is happening at the macro level. Higher timeframe structure defines your directional bias. Lower timeframes give you your entry. Use them in that order, every time.

Economic News Events

High-impact economic news events — central bank rate decisions, Non-Farm Payroll, CPI releases — create sudden, violent volatility spikes in the market. During these windows, liquidity drops sharply while price moves dramatically, which means stop losses can be skipped entirely, resulting in slippage well beyond your intended risk.

At PTM we do not trade news. The risk-to-reward profile simply does not stack up — the potential for outsized losses is too high, and most prop firms enforce restrictions around major news events for exactly this reason.

What we do recommend is being aware of the news calendar on any given trading day. Knowing that a high-impact event is scheduled at 13:30 UTC changes how you manage open positions and whether you look for new entries in that window. You do not need to predict the outcome — you just need to know it is coming.

Staying loosely informed on major geopolitical developments can also add useful context to longer-term market behaviour, though for intraday trading it remains secondary to technical analysis and structure.