First Steps to Becoming an Excellent Forex Trader
First Steps to Becoming an Excellent Forex Trader
Forex trading may seem frightening for the beginners, but it is an exciting and profitable activity for the seasoned traders. To become an excellent Forex trader, you need to learn a lot and practice even more. Today, let’s look at the first steps and strategies you have to implement to master the market and gain reputation and money.
1. Understand what Forex is and isn’t
First and foremost, Forex isn’t an easy way to make extra money with no work. This extremely liquid, extremely volatile market needs your patience, perfect emotional control, profound understanding of its tools and mechanisms, and, above all, robust risk management skills.
Trading currencies and making a profit out of the highs and lows you work with requires an investment from your part, hard study, and the support of a professional broker. We recommend you begin by reading the newest and best Forex books on the market to familiarize yourself with terminology, concepts, work methods, and techniques. The best books on Forex are just the stepping-stone of your future Forex career, as you need to top the information with practice.
2. Find a Reliable Broker
In parallel with the reading and education, you should carefully choose your brokering agency and make sure they allow you to begin with a demo account first.
Many agencies will also offer webinars and workshops, learning materials, and demonstrations. Trading platforms, programs, and software will help you achieve success easier and faster, but they can go as far: you need to train to use them to their max.
- Some of the best brokers allow you to begin with a $200 – $300 account to start trading. Specialists, however, recommend you should start with $1000 – $2000 account. It may look too much, but remember that with Forex, you trade on margin, so $1000 is a reasonable sum to make successful trades (in comparison to, say, stock market trades). Margin trading is risky if you trade your entire balance account, but offers a buffer in case of losses.
- In this case, your demo account is mandatory to understand how the market works, how and what you should trade, and how to manage risk. Demo accounts are somewhat like Monopoly money, with the difference that you make real-time, live-market trades until you use your real money.
During your apprentice/demo period, always work closely with your broker and Forex trainer and keep reading the books. You may perform a few successful trades, but this does not mean you will handle the pressure of trading your own money. We recommend you spend in between 3 and six months with demo trades that mirror as much as they can real situations.
3. Test Strategies before Going Live
When it comes to Forex, there are two categories of people: the ones considering it an art – thus relying on their guts, instincts, and insights, and the ones finding it a science – thus relying on mathematics, statistics, sophisticated techniques, and more.
Forex trading is a little bit of both. You need to learn strategies, analyses, and strategies, but use only the ones that work for you and your money. Some traders use the Four-Week Strategy for years, enjoying more peace of mind than the ones trying complex hedging or scalping strategies.
What you need to do during your demo stage is to understand and implement the strategies you would rely on with real money. Many feel invincible with fake balances and go against trends or engage in complex methods, but think what you will do when you have to risk your budget.
Moreover, many feel comfortable with high-risk, fast (seconds-fast) transactions and moves, while others love to study trends and make their move after careful analyses. Learn what type of trader you are (do you falter under fear or greed?) and pick your strategies accordingly.
4. Never Forget about Taxes
Forex is a global and unregulated market – something that most beginners tend to forget – and you have to keep an open eye to tax authorities in your state or country. Most brokers only provide the transaction history, which you will use further to compile your tax reports. For clear and easy tax reporting, you should consider the following:
- Use a platform that efficiently reconciles transaction histories (thousands in a year) with clear tax reporting and income statements you give to your accountant;
- Work closely with a tax expert while you trade to choose the best course of action.
You should never leave your demo stage without understanding taxes. Once you see with your own eyes the profits you made and the losses you suffer, how much they cost, and how to deal with paperwork and reporting, you may want to choose specific trading strategies and even favorite currency pairs.
5. Practice Even When You Trade with Real Money
Now that you are ready to put your own money on the line, you should still use the demo account, the books, and your broker’s recommendations before you make your moves. The careful, seasoned trader first works some strategies on the demo account before turning to the real situation. If you feel insecure about a path to choose, rely on your fake money to see the behaviors.
The bottom line here is that for a while, you should learn and practice to turn technical data and pricing/market trends into actionable trading strategies you can test on the demo account to make sure you are on the right track.
Patience, hard work, nerves of steel, and constant learning and risk taking – this is what Forex is about most of the times. Luckily, finance changes for the better every day, and you can turn Forex into a career and a vocation in the long term.