Learn how you can become a successful forex trader
Becoming a forex trader is as simple as opening an account with a broker, downloading your forex trading platform and choosing a currency pair for your first online forex trade. Anyone can do this, however, becoming a successful forex trader requires patience, determination and a willingness to start small and learn from your mistakes.
Focusing on your first steps
The majority of people interested in trading forex just want to start making money as soon as possible and with a little luck, this may be achieved for a short period of time at least. However, if you truly want to become successful at forex, the best thing you can do is start with a practice account and stick with it until you have achieved some measure of profitability.
A practice account or demo account as it’s commonly mentioned is your stepping-stone to the forex market – a risk-free way to discover how forex trading works in a simulated environment that mirrors the live market.
Trading with a demo account has several benefits since you will not only be learning how the platform and the market operate, but also if your trading strategy is viable to apply under live market conditions. You will be able to see exactly how losing or winning trade affects your available balance as well as how fast the market moves during volatile periods of uncertainty.
Trading a currency pair
Deciding which currency pair to trade is one of the most important factors to consider in a trading strategy. Each currency pair trades differently with some experiencing bigger moves throughout the day or at specific times while others may not be as exciting.
In general, you will want to trade the major forex pairs which are the ones that consist of the USD and another major currency. There are 7 forex majors in total and these include the EUR/USD, GBP/USD, USD/CHF etc.
These pairs are considered the most favorable for forex traders because they have a high trading volume and therefore better or tighter spreads.
Put simply, if you believe the EUR is going to increase in value against the USD, you will want to buy or enter a long position in EUR/USD. This means that you are selling the quote currency on the right, which is the USD, to buy the base currency on the left which is the EUR. As long as the chart on your forex trading platform shows the price moving upwards, you keep your position open and rake in profits as the EUR appreciates in value.
On the other hand, if you have reason to believe that the EUR will weaken, you can sell or go short the EUR/USD pair. In this position, we are essentially selling the EUR to buy USD. We keep the position open until we notice that the market starts moving back up. The goal here to remain in the trade as long as the price is moving downwards since we are selling and not buying the pair.
It should be noted that with each trade you open on the market, you are exposing yourself to a certain degree of risk. If the market doesn’t move towards the direction you predicted, you will be losing money until you close the position.
Thankfully, executing an online forex trade doesn’t just consist of opening and closing a position. The trading platform is a lot more sophisticated than that and a wide range of automated tools are available at your disposal.
When you place an order on the market, there are several parameters that you can customize according to your preference. Arguably, the most important, are the stop loss and take profit orders and you need to learn how to use these religiously with every trade.
Since the forex market is extremely volatile and unpredictable, you don’t want to rely on manually closing your positions every time you realize enough profit because your reflexes might fail you. This is where the automated stop loss and take profit orders come in. With these parameters, you indicate to your broker, how much you are willing to profit or risk before automatically closing the trade.
If the price moves past your indicated limits, the trade will be closed automatically which is an invaluable tool to have in such a fast-moving market. It can both protect your account from unnecessary losses as well as secure profits before the market changes in the opposite direction before you manage to close the trade.
Another method you can utilize to minimize your risk exposure is to trade with smaller positions or smaller lots. Trading lots are size of your position and this can also be changed when you open a position. A standard trading lot in forex is equal to 100.000 units of currency which isn’t a sustainable amount to trade with smaller deposits.
A solid risk management strategy is crucial for your success but while forex trading may be a considerably hard industry to succeed in, a forex trading account also provides you with access to much more asset classes than just currencies. If you find that currency trading isn’t for you, you can pivot to trading stocks, commodities or even cryptocurrencies just as easily.
Each financial market behaves differently and is affected by several different factors both internal and external and thousands of traders have proven that there is potential for success in all of them, as long as you invest the time to educate yourself of both the risks and opportunities available.