Starting your journey as a forex trader may seem rather daunting at first. You’ll probably ask yourself where you should even begin, what you need to know, and how will you know when you’re ready to open a live account. Following our three-step guide can help to make the process less intimidating.
Step 1: Educate Yourself
While this category might seem broad, allow us to explain in more detail. Education is the most important factor that will affect your success as a forex trader down the road. If you don’t have this, then you’ll join all the other beginners that have wiped out their accounts and walked away from trading for good. No matter how eager you are to start, remember that taking the time to learn is tied in with investing in your future. Profits aren’t guaranteed in forex trading, but a trader that really knows what they’re doing will always get farther than a beginner that only knows the basics.
There’s a lot of information out there, so you may not know where to start. Here are some of the things you’ll want to learn about:
- Forex Basics – this would include terminology, articles that explain what forex trading is, etc. A Google search for “forex basics” will bring up a lot of helpful information.
- Mechanics of Forex – like navigating a trading platform, placing orders, exiting orders, setting a stop loss, how-to videos, and so on. Most brokers work with the MT4 platform, so it would be helpful to watch YouTube tutorials for it.
- Forex Strategies – there are a lot of them and reading about the various strategies other traders use will help you to decide what might work best for you. Scalping, Bollinger Bands, trend following, and swing trading are a few well-known examples.
- Technical and Fundamental Analysis – this involves making trading decisions based on charts and data or information in the news.
- Risk-Management – this is one of the most important parts of your trading plan. Setting a stop loss and using trailing stops are common ways that traders limit their losses. Only risking a small percentage is another helpful practice.
- Miscellaneous Articles – articles about trading psychology, tips and tricks, and various other tidbits of information can help to expand one’s overall knowledge of trading.
While there’s a lot to learn, the good news is that you do all this research for free. There are also several different mediums for learning, so everyone can find something that helps them take in that information. For example, free YouTube videos, webinars, and seminars can help auditory learners, while articles and eBooks can help those that would rather read the information. Free training courses are also available and really go into detail about the things you should know.
Once you think you’ve taken in enough information, there are a few things you can do to test your knowledge. Start out by taking quizzes about forex information – if you don’t know most of the answers, then chances are that you haven’t studied enough. If you’re acing those tests, then move on to a free demo account, which is like a practice simulation account with virtual currency. Do keep in mind that some things differ on a demo account, so you shouldn’t walk into a live account with overconfidence just because you get amazing results on your demo account.
Step 2: Choose a Broker and Open a Live Account
Once you’re ready, the next big step you’ll need to take is opening a live account. The crucial factor in this step involves choosing a good forex broker. If you open an account with a scammer or a brokerage that charges high fees, you aren’t likely to profit. Therefore, it’s important to find a broker that is preferably regulated with good user reviews online. Be sure that any potential broker has a transparent website and a helpful customer support team that doesn’t seem pushy. Here are a few questions you’ll need to ask yourself when you’re comparing forex brokers:
- What do the spreads look like? Are they lower or higher than average?
- How much are the commission fees?
- What types of accounts are available? Some brokers offer Mini/Micro/Cent accounts, Standard/Classic accounts, Platinum, VIP, and other accounts with different perks.
- Can you afford the minimum deposit requirements? There are brokers out there that will let you open an account with $5, but some want $500+ for their cheapest accounts.
- What trading platform does the broker offer? MT4/MT5 or cTrader are some of the most popular options.
- Does the broker charge fees on deposits and/or withdrawals? Also, what type of funding methods are available? If you want to fund quickly, look for options like credit/debit, or eWallets and cryptocurrencies like Bitcoin. If standard bank wire is the only option, funding will be slow.
- What type of leverage does the broker offer? Beginners should be satisfied with 1:100 or less, but more experienced traders may prefer higher leverage.
- Does the broker offer any extra perks, like free educational resources or bonus/promotional opportunities? This isn’t necessary, but it is attractive if one or more of these is available.
Of course, there’s more you’ll need to look at when choosing a broker and you can find articles online that explain in more detail. Always be sure to read the fine print and terms & conditions as well so that you’ll know about any crazy withdrawal policies or hidden fees. Remember, opening an account with a good broker is crucial for success.
Step 3: Build Your Trading Strategy
We mentioned the need to research trading strategies in step one, but this is where you’ll need to put your trading strategy together. Here’s a quick overview of some of the most well-known strategies:
- Scalpers make many small transactions quickly, essentially profiting from very small price changes. The idea is that these profits add up over time, but one large loss can eliminate everything that the trader worked hard to make in one sweep.
- Day trading involves making many trades during the day, sometimes in the hundreds. These traders almost always close their trades out before the day’s end, rather than allowing them to carry over to the next trading day.
- Swing traders primarily look at technical analysis and attempt to capture gains in a financial instrument over a longer period, such as a few days or weeks.
There are many other trading strategies out there. Some look to profit over the short-term, while others are longer-term plans. No matter which strategy you choose, you’ll need to have risk-management precautions in place to limit your losses. Building a good trading strategy is the final step to becoming a successful forex trader. Once you start using your strategy, consider keeping a trading journal to watch for any changes that need to be made. Also, don’t put all your faith into indicators or Expert Advisors. You should always keep a close eye on these things and double-check that indicators are giving off accurate signals. Beginners might do better to avoid these altogether, as many have made the mistake of thinking that they are the answer.
The process of becoming a successful forex trader doesn’t have to be intimidating if traders take things step by step. You’ll need to start by getting a free education online, and there’s a lot to learn. Don’t rush, even if you have the money to invest and you’re feeling eager. Remember that opening a trading account without enough knowledge is the number one mistake that beginners make. Once you’re ready to move on to a live account, you’ll need to put in an equal amount of effort researching different brokers and comparing their offers. Finally, you’ll want to perfect your trading strategy with risk-management in mind. We can’t guarantee profits to any forex trader but following these steps will help to set you up on the road to success. With enough knowledge, a good broker, and a well-thought-out trading plan, you could go on to have a very profitable career.