You can mark the stitching line 1/8" inside the edge of the circle, or just estimate the distance from the edge. This project is fairly forgiving to mistakes.
Thread a needle with an 18" piece of thread. Tie a knot in the long end.
Inserting the needle first from the 'right' side of the fabric, sewing a running stitch just inside the edge of the fabric. The size of the running stitch will depend on the fabric, smaller stitches for lightweight cottons, larger stitches for heavy fabrics like denim or fake fur.