Also known as foreign exchange, forex trading is one of the
largest markets in the world, attracting both amateur and professional traders.
This increases your chances of having a long-term career and making good
profits. While there’s a significant interest in forex, understanding the right
steps can be tricky. For instance, you need to know how the fx
market works and have an analytical mind. This article discusses
step-by-step ways how to become a forex trader. It also shows
the best practices and offers actionable advice for experienced traders and
beginners who want to trade full-time.
Forex Trading Education
One of the things that successful traders have
in common is the curiosity to learn new things. If you intend to make good
profits, you must constantly learn about trading and the forex market.
Since forex is one of the most dynamic markets in the world,
you must know what’s happening in the markets and what’s affecting them before
you open an account. From online courses to books and
educational websites, there are several ways to learn how to become a
forex trader.
Online Courses
Forex online courses provide the best avenues of learning
forex in college-based classes. The courses involve PowerPoint presentations,
trading simulations, eBooks, etc. Through these courses, you can move through
beginner to intermediate and advanced levels depending on the course's offer.
If you have limited knowledge about forex, these courses can be invaluable if
you want to learn how to become a forex trader.
While most courses range from $50 to hundreds of dollars,
you can access dozens online almost free. A good online course should be
developed with a successful trader’s knowledge, skills and experience and
offered as part of the membership of the trading platform.
The course should also be self-paced and include webinars,
videos, chat rooms, trading simulators and access to mentors. Once you
know how to become a forex trader, you can start applying your
knowledge through real trading.
Qualities of a Good Online Course
While looking for a good forex online course, you need to
consider the following;
- The
Reputation of the Course
With the increase in online trading, the supply of online
trading courses has dramatically risen. There are many courses out there, but
you’ll want to consider the reputation of the course. First, you need to avoid
courses which promise instant or guaranteed returns without putting in an
effort. A good Forex online course should not make such promises.
Instead, choose a course that clarifies that trading
strategies take time to learn. Remember, forex trading involves risk-taking and
there are no guarantees, especially if you want to master how to become
a forex trader.
- Certification
for the Course
A financial institution or regulatory body should certify a
good online course. If the course is universal, it should be certified by
different international bodies. For instance, in the United States, the most
popular bodies that certify online forex courses include;
- The
Securities and Exchange Commission
- The
Chicago Board of Trade
- The
National Futures Association
- The
Chicago Mercantile Exchange
- The
Commodity Futures Trading Commission (CFTC
- The
Financial Industry Regulatory Authority
- The
National Futures Association
- Cost
and Duration
Unlike live courses, online courses are flexible, with most lessons based on pre-recorded lectures and video presentations. Before you choose a course, please be sure to consider the cost and duration of the course. Since these elements vary depending on the provider, you need to narrow your options by checking previous students' terms, conditions and reviews to help you learn how to become a forex trader.
Books
If you want to master the forex trade fast, reading books is
one of your best options. With forex trading books, you’ll quickly learn the
key points for effective trading. The best forex trade books will guide you
throughout the journey right from the basics to becoming an expert. To
learn how to become a forex trader, you must start practising
what you learn as soon as possible.
Benefits of Forex Trading Books
- Mistakes
to avoid– like every other job, you are bound to make many mistakes as
a beginner. But, with the right information from the books, you can avoid
this and start trading on the right footing.
- Knowing
the myths– while most people give their opinions about forex, many are
untrue. Thankfully, you can prove some of these myths with the best books
and understand what’s true. Understanding the myths is very important if
you want to know how to become a forex trader.
- Motivation–
whether a beginner or a professional, motivation is extremely necessary.
There comes a time when you don’t even feel like trading. This can be due
to losses or some mistakes you made. Thankfully, the best forex books can
motivate you to start from scratch.
- Money
management– alongside forex trading strategies, it’s best to learn how
to manage your money. This might seem unnecessary initially, but it will
help you in the long run.
- Avoid
scams- like any online investment, buying and selling in forex is
full of scams. Several brokers might ask you to invest with them and scam
you. Frauds are also common but you can avoid them by choosing books that
explain how to become a forex trader.
- Boost
your trading techniques– if you are already trading in forex, these
books can help you learn the tricks and tips to improve your game. It’s,
therefore, important to keep learning and get better insights.
- Know
the risks– since forex trade requires investment, you should always
expect risks. With the best forex trading books, you’ll learn how to
become a forex trader and how to avoid risks.
- Making
strategies– if you make strategies without planning, you will likely
make mistakes. But with the best forex books, you’ll understand the financial
market trends and strategise accordingly.
Educational Websites
Educational websites allow you to learn basic trading
strategies, investment strategies and risk management. Once you’ve gathered
enough information from the websites, you can stay on top of economic
news, foreign exchange market trends and global events. These
websites will also help you boost your skills and learn how to become a
forex trader to maximise your returns.
However, before settling on any particular website, you’ll
want to ensure they are trustworthy and legitimate. Whether you are looking for
technical analysis, news or strategy guidance, it’s important to pick reputable
sites that can help you become a forex trader.
The best websites should cover all the basics of learning
about forex trading. As a rule, start with basic educational content before
moving to foreign exchange market research and strategies.
This way, you’ll understand the market and master the trading tools so you can
make informed decisions.
Forex Trading Terminology
Forex has its terminologies or language. When you are
introduced to platforms such as MT4, and MT5, getting used to trading can be
challenging. By not understanding such language, you can hinder your trading
journey.
So, it’s important to familiarise yourself with some of the
basic forex terminologies that can help you trade and master how to
become a forex trader. While plenty is to learn, some core terms are
used in forex.
Pip
Known as the short form of Percentage in Point, a Pip refers
to profits and losses in forex. It represents the smallest increment that a
forex exchange rate can have. Typically, one pip is equivalent to the fourth
decimal of most currency pairs.
For example, if EUR/USD rises from 1.1558 to 1.1562, that
rise equals four pips. However, there are currency pairs like yen-pairs whose
pips are at the second decimal place.
Leverage
While the forex market is open 24 hours a
day, traders are attracted because of leverage. With leverage,
traders can open a much larger position than their trading size. This exposes
them to huge amounts of currency without paying the full value upfront. For
instance, if you are given a leverage of 1:50, you can use your initial
investment of $200 to open a trade valued at $10,000.
Margin
When using leverage, your broker can allocate a portion of
your account size as the collateral for the trade. This collateral is known as
the margin and it lets you keep some deposit in your account. For instance, if
you trade on a 1% margin for every USD100 that you invest, you need to have a
deposit of at least 1 dollar. This deposit, therefore, serves as a guarantee
for the leveraged amount.
Spread
Spread refers to the transaction costs you must pay each
time you enter a trade. While most brokers don’t charge any fees on placing
trades, the spread remains the main cost to Forex traders. Knowing this is
important if you want to master how to become a forex trader.
Exchange Rate
The exchange rate is the price base currency compared to the
counter-currency. If the exchange rate of EUR/USD is 1.15, then you need $1.15
to buy one euro. A high exchange rate means the price of the base currency is
appreciating while that of the counter currency is depreciating.
Bid Price
This is the price at which a trader is willing to sell a
currency pair. Conversely, the asking price is the price he is willing to buy
the currency pair.
Stop Loss
This tool lets you close a position once you reach a certain
pre-set price. Using this tool, you can protect your trade against further
losses.
Forex Trading Tools
As a beginner, investing in the best forex trading tools you
can afford to sell and buy in forex smoothly is important. These tools are
available for both Windows and Mac; hence you can use them wherever you are.
With these tools, you’ll trade well and access the most reliable information
possible.
Trading Platforms
Since today’s trading platforms include several technical
analyses, they are tools. On most trading platforms, there is news data showing
real-time prices and another window allowing you to trade off the charts
directly.
The best thing about trading platforms is that they have
fully customizable dashboards that let you set your preferences and create
watchlists. Using the software these platforms provide, you can customize and
even automate your trade according to your set parameters. Moreover, the fact
that they come in mobile apps means you can always trade on the go and
significantly increase your chances of success.
Charting Tools
As one of the most popular tools, charting tools allow you
to visualise how the market is doing and even analyze the conditions in real-time. Also,
they let you place the trades directly from the charts and customise them
according to your pre-set parameters.
Moreover, they include additional features like trading
signals and indicators which you can use to test your strategies and gain a
clear view of how you could have performed in real-time trading. Unlike in the
past, charting tools nowadays include interactive price charts with various
overlays and technical indicators.
News Feeds
News feeds are also another important forex trading tool
that can give you real-time data. While you can manually search the news from
sources such as Reuters, Bloomberg, Forex Factory and FX Street, it’s much
easier if it’s delivered automatically from the central bank or
other sources.
With a tool such as Admirals MetaTrader
Supreme Edition plugin, news feeds can be delivered directly to you. It
connects all big news providers, making it one of the best forex trading tools.
The best is to filter the news and receive only what you need.
Forex Trading Strategies
Forex trading strategies are designed to give you insights
into when you can buy and sell in forex. Since not all trading strategies are
equal, some may work while others may not, depending on the particular trading
situation. Also, trading strategies require different levels of fundamental and
technical analysis. Depending on the trader, a strategy can be considered
simple or complex.
Scalping
Scalping refers to taking advantage of small intraday price
moves. A scalper seeks to quickly beat the spread with just a few pips before
he can exit the market. Unlike others, this strategy uses low time-frame charts
like the ones used in the MetaTrader 4 Supreme Edition package. Scalpers need
to be able to make decisions fast, even under pressure.
They should, therefore, spend much time on the screen while
focusing on one or more specific markets. The advantage of this strategy is
that it allows you to focus for a specific time; hence you don’t have to worry
about interpreting long-term fundamentals or holding specific positions
overnight.
Besides putting much pressure on you, you will likely react
emotionally and make mistakes, especially when your trade runs for only a few
minutes. Therefore, it may not be the best trading style for beginners to start
with. Otherwise, this strategy only suits those who can dedicate and maintain
focus during those rapid trades.
Swing Trading
Swing trading refers to when traders hold their positions
open for several days. Some popular methods they use include range trading,
trend following, and breakout trading. If you choose this strategy, you must be
patient as it might take several days for a good opportunity to appear. You
might even hold up your trade for over a week while making losses.
If you are comfortable running positions for days, swing
trading is the right strategy. It also allows you to use fundamental analysis,
which scalp trading lacks. More so, it’s one of the key things taught to
become a forex trader.
Carry Trading
Carry trading strategy is where you try to
profit from the difference between the two currencies. For example, you can buy
a high-interest-rate currency and sell one with low interest. This way, you can
receive an interest rate payment depending on your position size.
The advantage of this strategy is that you can earn much
profit from just holding a position. Of course, you need the right market
environment for this to work. Carry trades tend to perform well in markets
where traders seek high risk. However, before applying this strategy, you need
to know the characteristics of the currency you’re buying. For example, a
currency like the Australian Dollar will do well with rising comedy
prices.
Forex Trading Plan
A trading plan is an organised trading approach that traders
develop based on market analysis while factoring in any risks they’re likely to
encounter. Traders who follow disciplined trading are likely to increase their
profits. While they can lose some trades, they will still realize profits
because they followed a disciplined approach.
Why You Need a Trading Plan
A good trading plan can help you make logical decisions to
avoid being emotional at the heart of the moment. Other benefits include;
- Once
you make an upfront plan, trading becomes easy.
- It
allows you to make objective decisions and cut losses
- By
sticking to your plan, you can know what works and what cannot work
- It
gives you room for improvement as you can easily learn from your past
mistakes
Setting Clear Goals
Any trading goal you set should be measurable, specific and
attainable. For example, if you want to increase your portfolio by 15%, your
statement should be specific so you can measure success at the end of the time
frame. Your goal should also be based on your attitude and the amount of time
you wish to commit.
Developing a Risk Management Strategy
Risk management strategies allow you to set rules to
minimise trading losses. While this requires much work and prior planning, it’s
a must-have, especially if you want to ensure you make minimal losses while
trading. Since foreign currencies frequently fluctuate, you
need a strategy that can cushion you and prevent you from making losses.
An effective risk management strategy should also reduce
your losses and help you better manage any shifts in currency pairings much
easier.
A risk management strategy can help you diversify so you
don’t just trade on one currency pair and risk making losses. But if you are
using multiple currencies, you become less vulnerable to risks. The bottom line
is to understand the risks so that you can know the best strategies to manage
them. You can start with a demo account before moving to real
trading.
Regularly Reviewing Performance
Forex trading requires you to monitor your
performance and overall position regularly. A good way to do this is to keep a
journal and record your reasons for trading, emotions during trade, goals and
achievements. By keeping a journal or diary, you can maintain a clear focus and
learn from your mistakes.
It’s also important to monitor your performance and keep a
watch on your trading capital while bearing in mind that the main aim of
trading is to preserve your capital. Furthermore, by reviewing your performance,
you can look at your past trades and avoid making many more major mistakes in
future. The important thing is to review your performance and learn from
experience.
Conclusion
While succeeding in forex trade is far from easy, it’s
nothing impossible. It’s a path full of challenges and pitfalls but the rewards
are quite fulfilling. You must create a learning path by picking the right
courses, books and websites to succeed.
You also need to master the strategies and develop a trading
plan. If you are disciplined and have the right mindset, the possibilities of
making profits are endless. Just remember to keep an eye on and adapt to the
best strategies.
Frequently Asked Questions
How much time do I need to commit to trading forex every
day?
The trading time typically ranges from one trader to the
other. While some people start trading and keep monitoring the
market, others enter the market, trade and come back later to review their
trade position.
How long does it take to master forex trading?
This depends on how much time you dedicate each day to
learning forex. Even if you’ve opened a trading account, it’s
recommended that you continue learning. If you want to start fast, setting
aside time each day for learning and researching is best.
Is forex trading safe?
Like any other online business, there are several scammers
out there. However, this doesn’t mean no reputable brokers are always ready to
help you. So, spending some time researching and reading everything about their
websites is important. You should also check online user reviewers and gather
as much information as possible about them.
Is forex trading right for me?
To enjoy forex trading, you must be strategic and have a
strong mathematics ability. You should also have problem-solving abilities and
analytical skills.
How do I practice forex trading before going live?
Aside from developing your styles and ideas, it’s best to seek advice from professional traders while continuously reading forex trading books.