What are the fundamental steps of becoming a forex trader?

Jul 24, 2020 1:20 AM ET

If you want to become a successful currency trader, the chances are that you’re not alone. After all, the forex market has grown exponentially of late, with an estimated $6.6 trillion now traded globally every single day.

However, the derivative nature of currency means that you don’t hold a secure source of wealth as a forex trader, while the fact that it’s margin-based can also cause you to lose more than your original deposit.

Of course, the reverse is also true, and in this post we’ll offer some steps on how to become a successful forex trader and thrive in a challenging marketplace.

1. Start Modestly and Scale Your Efforts 

When starting out, it’s important that you start modestly and look to scale your efforts in line with growth and profitability.

To this end, we’d also recommend using a demo account before you begin trading for real, as this is available on all reputable trading platforms and will help you to gain practical experience in a simulated market environment.

Once you’re ready to start trading for real, you should focus primarily on one or two currency pairings, which can be selected in accordance with your knowledge base and the unique strategies that you’ve developed and honed over time.

Ideally, you’d never have too large a selection of currencies in your portfolio (as this would be difficult to manage), but you can look to scale trading endeavours as you build experience and achieve returns over time.

2. Find the Right Currency Pairs 

This leads us neatly onto the topic of currency pairs, which also play a key role in determining the success (or failure) of your portfolio.

From a beginner’s perspective, the EUR/USD pairing is one of the most viable assets, with this widely considered to be the most traded forex entity in the world. The reason for this is simple; as it’s incredibly liquid and boasts a noticeably tight spread, although you should also note that it’s quite volatile and not necessarily ideal for risk-averse investors.

For beginners who don’t have a particularly voracious appetite for risk, the USD/JPY offers an excellent alternative. This is the second most popular forex pair, and one that tends to move in a predictable way due to its sensitivity to geopolitical events from across the globe.

Ultimately, you’ll need to select one or two pairings that suit your outlook, but these options represent an ideal starting point.

3. Set up an Automated Trading System 

As technology has evolved, so too technology has begun to play a pivotal role in the forex market.

As a result of this, all orders are now facilitated through online trading platforms, while these entities can also offer a range of features, indicators and analytical tools that help to drive more informed decisions.

Modern trading platforms are also smart and intuitive, as they enable users to utilise algorithms as a way of creating automated trades that capitalise on real-time price movements in geographic trading sessions (such as Asia) from across the globe.

The same automated technology can also help you to regulate losses. More specifically, stop losses can be applied to automatically close open positions once they reach a predetermined level of loss, helping to protect your capital and optimise passive income streams.

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