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A lot of people think about education and license as the most important things in any business. However, trading is a business where knowledge and license do not mean a lot of fortune. Testing, analysis, and patience are the most important things in trading.
A forex trader, aka a currency trader or a foreign exchange trader, is an individual that indulges in buy/sell of currencies on a forex exchange platform. Financial institutions or banks appoint the forex trader to help them manage the cross-country transactions to ensure more profitability. Apart from this professional appointment, some forex traders have opted for exchanging currency as a bread-earning occupation.
How to Become a Forex Trader?
To become a forex trader, you need to start reading books related to currency exchange, technical analysis, and fundamental analysis. In the next step, you need to practice on a demo account (virtual account), learn to make decisions, and create bad and good trading positions. Finally, when you see profit gains in the demo account, open a forex trading account, make the first deposit, and become a forex trader.
How long does it take to learn forex?
The average trader needs around 5 years to learn forex trading and develop a personal trading strategy. However, in few months, traders can quickly learn the trading process, basic technical analysis skills, and fundamental analysis. The trading strategy improvement, market behavior knowledge, and experience can be built only over a long time.
How do I become a currency trader?
- Step 1: Start reading trading books.
Please see our advice in our article Can Forex Trading be Self Taught? Please try to read the most important trading book “Technical Analysis” by John Murphy.
In this book, you can see that forex trading can be self-taught; traders can read books and practice trading as same as any other skill. Trading is not brain surgery, but it is based on analysis, testing, patience.
- Step 2: Try to understand risk.
Anybody with a small amount of money and patience may turn into a Forex trader. It would help if you had time and skill to turn into a profitable or successful trader. As a new forex trader, you should focus on restricting losses and spotting trade setups with positive risks. In the face of the ease of getting into the Forex trade, there are some measures you should take. Hurried entry into Forex business may lead to losses very quickly. Let’s find out how to become a Forex trader. Read everything about an absolute and maximum drawdown in the portfolio.
Then try to read our article Can You Make a Living Trading Forex and see the risk table.
- Step 3: Choose a broker and then open an account with a reputable broker.
How much trading capital you need?
Forex traders would not require a big capital for trading because they can trade on margin. An ordinary Forex broker needs a minimum of $100 to activate an account to start trading. The golden rule to become a Forex trader is to start with at least $500 to activate the mini account. However, this number may sound slightly higher for beginners, but that will let you work like a safeguard in loss cases. If you are not looking for risk, the big amount will ensure you are not forced to exit the trade.
Why $500 is the minimum amount. If you trade micro-lots and risk $5 per position (50 pips on 1 micro lot position size), it is a 1% risk for your portfolio. 1%-2% risk is the maximum risk for new traders (and good traders as well).
What qualifications do you need to be a forex trader?
You do not need qualifications to manage your own money. Incorporate finance; you need to have a license (learn about FINRA certificate). So, do you need a license to trade forex – No, if you trade your own money or PAMM or MAMM accounts. If you work in the company as a trader – some companies will ask you to have a license.
So when you ask yourself, How do I become a forex trader – start trading and read trading books. To manage your money, you do not need qualifications.
Using the Demo Account
The Forex trade demo account works on fictitious money. It is connected to the live market. Trades may be located in actual time and can represent what could be a true loss. Before you spend on his line, you will require some basics practices. A demo account can give you this trading practice without any pressure of being right all the time.
How to practice forex trading with fictitious money?
Before you start practicing, you will need to learn a few Forex trading strategies and advice from trading books. As a Forex trader, you may require to develop trading ideas. However, in the beginning, it may help you to get some directions from professionals, and it is important to read as much as you can. Forex trading may be very discouraging in the initial days. That’s why you may need some guidance and advice from an expert Forex trader.
Starting the actual trade
To become a forex trader, you need to open a forex trading account at a regulated forex broker. After practicing on a demo account and reading forex books, you need to deposit at least $1000 and start trading. However, if you have the experience, you can find a job in some trading prop company and start professionally trading.
There are various ways and methods to become a forex trader.
The first step remains to be choosing a particular way through which you can trade currency. Primarily, there are three ways to trade currencies stated below.
- On an exchange governed by the Commodity Futures Trading Commission
- On an exchange governed by the U.S. Securities and Exchange Commission (SEC)
- On over the counter market (unregulated, off-exchange market)
For trading currencies, an individual needs to have a brokerage trading account.
If you already have a U.S stock broking account, you might have the privilege to trade forex on the same. While in some cases, you may have to fill an online currency-trading application.
You may have to deposit a certain amount in your forex account for trading in forex, but it varies from broker to broker. The more deposit you would keep in your account, the more flexibility you would get in terms of the broker’s risk assessment.
After opening the account, you can trade your preferred currencies, but note that they are traded in pairs. It works on the formula of price rise in one currency leading to downgrading in another.
As a beginner, you are advised to trade only in popular currencies like the U.S dollar or British pound (GBP), not to face liquidity challenges. You should trade forex on listed and regulated exchanges to avoid consequences on your new journey as a beginner.
For trading in currencies, a forex trader has to pay a charge called the forex spread. The charge is that a middleman/broker levies on a forex buyer and seller to manage the trade.
Before you really start Forex trading and earn money in Forex trade, you should be capable of profitable trade in your demo trading. The track record of profitable earning should be of a couple of weeks, a minimum of three months, though a period of six months is the best.
Look, if you are on the right track.
After the practice of a few months, a little bit of training, some education about Forex trade, and becoming a consistently profitable trader, it is time to enter the world of live Forex trading. You will find that it is a little bit different than the demo trading. However, if you continue to like the practice you did to become a profitable trader in your demo account trading, you will find success in Forex trading.
Things to Be Aware of as a Forex Trader
Forex traders can get excited and overwhelmed with the hefty profits in currency trades, but it’s not all rosy. If you can win a big trade with a small amount, you can also lose a big amount when faced with downward consequences and trading situations. Just like your unlimited profits, you lose unlimited, too.
Forex trading comes with complications and complexities, one of which is a lack of uniformity in placing and trading quotes. As an equity trader, you buy a stock in your local currency as it’s listed on your country’s stock market; here, you do not have to worry about the currency converter. But when you are a forex trader, the trading is done in currency pairs, as discussed above. Some trades are quoted against the American dollar, while some against the Japanese yen. The lack of standardization and regulations makes it difficult for traders to ease and simplify trading forex.
As a forex trader, you must be aware of the fraud spanning your hard-earned money when trading currencies. It doesn’t matter whether you opt for a regulated forex exchange or an over-the-counter market; anyone can take advantage of your greed. Thus, you must avoid getting into ‘Get Rich Schemes.’ There is nothing in this world that you can get without working for it. So, invest your brain when you invest your money in the forex market.
Bonus Tip
You may be worried about losing your money in the forex market as a beginner, but you can get a smooth time understanding the entire process with practice forex trading accounts. All you have to do is search for a broker that provides such facilities; one of such is FOREX.com.
Using such a practice account, you can experience trading currencies without spending your own money. When you finally feel confident enough to trade in the real market, go for it. It’s a boon for individuals wanting to dive into this field without facing any severe consequences. All the best!
How to be a professional forex trader?
If you have funds above $100 000, you can start living as a professional trader. Then you can quit your job and live from the profit of your trades. This is my personal opinion.
Trading cannot always be profitable. No financial markets, including the forex market, are sure shot accurately. But as they say, try and try and you will win. Here winning means being a little more accurate forex trader than you already are.
What is an Accurate forex trader?
An accurate forex trader implies a trader’s possibility to have as high as the possible trading ratio as the number of correct predictions to the total number of input trades when the risk-reward relationship is immutable. Humans tend to find solutions to their problems, which has been true in forex trading. With the best practices, a forex trader can increase the chances of profit and reduce losses. These tactics are as simple as being aware, disciplined, and prepared for the forex market. Implementing constant awareness in trading can, for sure, lead to better accuracy forex trading. Traders need to learn to analyze mistakes if they want to improve accuracy.
How can forex traders improve accuracy?
For example, a trader creates a strategy to buy and sell some forex pair using some rules. Trader risks $10 and tries to reach $10 target. When the trader tested strategy, his winning ratio was 49%, for example (risk: reward is 1:1). A trader can create a better model, change rules, and add the rules using a trading history plan or some machine learning algorithm. For example, just one filter (new trading rule, for example, to buy only above EMA200 or SMA10, etc.) can improve accuracy, and now it is 52%. This is a huge improvement, and now strategy can be profitable.
Tips How to Become an Accurate Forex Trader:
1. Take It Easy and Create Low Expectation
Things, even in ordinary life, get ruined if you make impulsive decisions. The same thing applies to forex trading. Be easy when trading in forex.
The forex market is highly leveraged as much as the typical leverage scenario looks like 50:1 or 100:1. It means if you have $1 in your forex trading account (it is just a hypothetical example), you will get to trade forex worth $100. That is insane. In some cases, the leverage is as much as 200:1. The profit using leverage is gigantic, but it also comes with the downside risk of being wiped out from the forex market within seconds if the trade goes in the opposite direction.
Forex trading is different from stock market trading. In forex trading, after getting done with the questionnaire on trading goals, if you have a debit card and an identification card, you can have margin trading, unlike the stock market as in the stock market, you need to have real money in your trading account. Thus, it’s easier for more people to trade in the forex market.
Easy access often makes novice traders enter the market hoping that they would make easy and quick money. The attraction here can be compared to a lottery ticket that people buy as their financial remedies. Most lottery buyers feel that they will win the lottery and get rich in a few days. But what they forget is that only one in a hundred million has the odd chance to win the lottery.
The same thing happens when new traders enter the market. They forget that the forex market is not a lottery; it would require more than just a chance. There has to be enough knowledge, skills, and patience to win profitable trades, which doesn’t come by gambling.
Thus, the best practice you can opt for while starting the forex trading is to go in easy. It would help if you had a limit on how much you should trade initially. In addition to that, never trade without a stop loss. Stick to your reward-to-risk ratio and how much you can afford to lose in a day. If you abide by your own rules and apply your skills, eventually, you would earn well. But never trade as if you are gambling – this is the bottom line for being an accurate forex trader.
2. Be Prepared for Your Trade
One has to be prepared in life for the endeavors that he/she is aiming for. So, to be an accurate forex trader, you are advised to be fully prepared before you begin trading. No one wants to be an average trader. In forex, average trading means being one of the 2/3 forex traders who lose money. Many times forex traders even lose their capital money, which results in high debts. Also, average forex traders tend to give up trading within four months. No one wants either of these, correct?
The best way to avoid these consequences is to make yourself educated with forex trading and try trading on a practice forex account.
You have to read as much as possible and keep yourself updated with the current news and learn the forex market’s technicalities. You can do these by reading financial newspapers, watching educational videos, or going through research papers. You may have to invest time, but that would be the best trade you would take in your life.
As stated above, you can also start to learn trading through a practice forex trading account. Most of the U.S. forex brokerage houses provide these accounts without charging fees. So, could you make the most of it? Take a pen and paper and make a note of your trades and your mistakes. Trade journaling is useful. It will help you keep track of your trading directions. Your initial trades would not be profitable, but that’s totally fine, as that is how it is supposed to be when you are learning. And that’s the reason that you should do it on a practice account, so you do not lose real money.
3. Be a Disciplined Trader
The foremost thing to be an accurate forex trader is to be disciplined. You must decide your losing capacity, place stop loss according, and not deviate from it at any cost. Also, do all these things before you start your trade. Even if you think you can gain more profit, don’t trade as greed is a poisonous thing, and you may end up losing more than what you have won till now. Stick to your trading plan, as without a trading plan, trading is just mere gambling. You can’t expect to win if you can’t follow your own rules.
4. Don’t Fall for Scam Traps.
This doesn’t seem that major of standard practice, but it is very crucial. In greed, we tend to do things we won’t do otherwise. There are people out there to take advantage of your greed by selling you “guaranteed results” and “get your money doubled” kind of schemes.
Thus, choose only a credible broker; cheap can actually cost you a lot more in the case of forex trading. You can also check the credibility or the status of a broker from the National Futures Association (NFA) in the United States. If your potential broker is not on the record list, it is a big red flag. Remember, in the end, as much as you educate yourself and as much time you invest in forex trading, the more accurate forex trader you will become with the passing time.
Final thoughts
The Forex market offers you the scope to trade round the clock. Additionally, the capital to start trading is significantly low. You can decide how much money you want to trade.
Now, you can learn how to begin trading in the Forex market with these easy tips, and you’re well on the way to having a successful Forex trading business.
