5 Step Guide To Get Started As A Forex Trader
In the earlier days, not many people considered forex trading an ultimate career path because of the challenges and risks. However, this prejudice of forex trading being untouchable for the common population has begun to change in the past few years. The digital era revolutionized the trading industry, and as a result of the innovative changes, the forex market has become easily accessible to all groups of people. The challenges and risks are still there to a certain extent, but overcoming these challenges has become way easier, and 2023 is a great year to kickstart your trading journey in the lucrative forex market.
This 5-step guide will help you get started as a forex trader, and you will unlock all the available opportunities for a rewarding experience in the dynamic currency market.
Forex trader and what it means?
A forex trader can either be an individual or an institution engaged in buying and selling of forex currency pairs. Anyone who decides to take part in currency trading and opens a trading account with a forex broker can be referred to as a forex trader. Becoming a forex trader does not require any qualification or experience like other professions. A beginner can choose to learn on their own and get into forex trading after proper preparation.
The forex market exists on a virtual level; people from all over the world can sign up with a forex broker and get into trading with an account on reputed trading platforms. The most popular ones chosen by most traders are MT4 and MT5. Those who are novice often prefer the MT4 platform due to its simple UI, and experienced traders prefer MT5 because it has more trading features to play with.
In short, becoming a forex trader has never been as easy as it is in the 21st century. A basic system or device with a stable internet connection is all you need to enter the forex market. However, it is essential to have some knowledge about the market dynamics, trading concepts and more, but all of these can be acquired with diligent learning and practice over time. Entering the forex market and becoming a trader is easy, but obtaining consistent profits and long-lasting success will surely require some effort on your part.
What does a forex trader do?
As I mentioned, forex traders will focus on making profits by buying and selling currency pairs. Currencies that are paired together represent the exchange rate or value of one currency in relation to another. If a trader wants to open a position with this pair, they will analyse the potential price movements. This analysis can be either fully technical or fundamental, sometimes a combination of both.
If the trader sees the possibility of a price increase, they will buy the pair by opening a long position. On the contrary, if there is a chance of the price going down, they will open a short position for selling the pair. Forex trading is about attempting to profit from currency price fluctuations. However, the trading decisions are made based on a well-defined strategy, market analysis, and logical calculations. However, currency pairs’ volatile and unpredictable nature cannot be discounted in the trading process. You will surely be exposed to market risk while trading with any pair; thus, risk management must be prioritized.
5 steps to follow for becoming a Forex trader
Becoming a forex trader can be a long process for a beginner, but you can surely shorten the learning time span by following the steps below.
- Gather market knowledge and practice trading
The first step that you need to take before stepping into the forex market is preparing yourself to withstand the market volatility. For this, you need to obtain market knowledge. Developing market knowledge in the context of forex includes developing an understanding of different types of currency pairs, learning about currency price fluctuations and the reasons behind them, and performing fundamental and technical analysis to execute your strategy. You must also study different strategies and trading concepts to select the best one for yourself.
However, all of these together will only form theoretical knowledge, and you will surely need some practical knowledge to apply these theories and techniques in the trading process. For this, you need practice, and a Forex demo account is a perfect tool designed for testing, training and learning without any money at risk. Demo accounts are freely accessible, and you get to experience trading in the simulative setup where real-time market conditions are mirrored. This allows you to explore the technical side at your own pace and develop trading skills.
- Setting realistic goals and expectations
Although demo accounts are replicas of real or live accounts with the same features and functionality, the results may not be the same in live trading. In fact, demo accounts have many limitations, such as not evoking emotional responses, absence of order queuing, price re-quotes and slippage, having smaller spreads and more. All of these have a crucial role to play in actual trading, and hence, you may not be able to learn these aspects of forex on a demo account. Many traders who transition to a live account from a demo account tend to have unrealistic expectations, which makes them disappointed later on.
Hence, the next step for becoming a successful forex trader is setting realistic goals and having realistic expectations. For this, you need to keep yourself grounded without falling into the trap of delusions, which makes many newbies believe in overnight success. I suggest you have a long-term approach and aim for consistency instead of chasing quick profits. You can use trading tools like a margin calculator to calculate the margin you wish to use with regard to your trading capital. Don’t risk more than you can afford to lose, or your trading journey won’t go too far ahead. Manage your risk and protect your capital, and profits shall come automatically.
- Trade Major pairs first
The next step is going live with actual funds and choosing your currency pairs to trade with. There are 3 different types of currency pairs in the forex market, and major pairs are the best starting point for a beginner. Major pairs generate the majority of the trading volume in the currency market, and they stand out because of their liquidity and stability. They are less risky for a newbie but provide ample trading opportunities.
Most novice traders start their trading journey with the popular EUR/USD pair, which is the easiest to trade with. Minor pairs are more volatile, and exotic pairs are the riskiest, with low liquidity and high volatility. Hence, all experts recommend trading one major pair at first and fully focusing on it before switching to other pairs. Mastering one pair is the best approach for someone trading for the first time.
- Use quality trading platforms
You need to pay the most attention to the quality and functionality of your trading platforms while trading. A trading platform is just a piece of software designed for trading, but it greatly impacts the trading experience and results. Technology has a key role to play in the trading process, and you need to use platforms that complement your trading style while providing seamless execution of orders.
The tools and features you get on the platform should also be evaluated, as having the right set of tools is essential for enhancing your trading skills. The trading platform needs to have a backtesting feature for testing your strategies beforehand, and automation options should also be available for advanced traders. The broker you choose for live trading should also be providing solid trading conditions and support for trading on your preferred platform.
- Keep learning and practising
The last step in the process of becoming a forex trader is an ongoing process, as one can never master it all within a short span of time. Developing your skills as a trader and becoming consistently profitable surely takes time and effort. You need to keep learning and practising even after getting into live trading. Here, the learning process will become more rewarding with the market exposure.
We always say that experience is the best teacher, and the same applies to forex trading. You will learn a lot about your strengths and weaknesses by assessing your performance in actual trading. A powerful tool you can use during this step is a trading journal. By journaling, you will be able to look back on your decisions and track your progress.
Conclusion
Becoming a profitable forex trader requires some dedication and effort in the right direction. Understanding the true essence of forex trading and indulging in learning is the first step towards success. But all the steps you take are equally important, and being disciplined is a must.
