The forex market is accessible, educational, exciting, and offers many lucrative opportunities to traders. Despite the clear and obvious benefits of the forex market, some traders fail to properly learn how it works and become successful traders. In fact, a larger percentage of forex traders are losing money. While learning to trade forex can be challenging, it is possible to master the online trading world once you know the right steps to take.
This post will give you a strong foundation to build your trading career and it will teach you how to become a successful trader despite having no experience in the past. For beginners, you will learn the best trading practices and how you can start making money trading forex. So, let’s get started.
What is a Trader?
A forex trader is a person that places orders on the markets, either as an independent trader or on behalf of financial entities like banks, hedge funds, investment funds, and others. The exchange orders are processed either in the trader’s name or on behalf of the client they represent. As a forex trader, the primary goal is to make money. There is enough liquidity in the forex market which processes over $6 trillion in orders daily. This means that there are many, many profitable opportunities for people to take advantage of.
Types of Successful Traders
As mentioned earlier, there are two general classes of traders:
- Traders that trade on behalf of clients
- And those that trade for themselves
The traders that work for financial institutions or brokerage firms buy and sell currencies on behalf of their company’s clients. This means that they do not risk their own trading capital, and instead of earning profits for themselves, they are paid a salary. The client is providing the trading capital for the buying and selling of the financial instruments and is also covering the risks involved in forex trading. The client can be an individual or a company that does not operate a trading room of its own.
Independent traders, on the other hand, use their personal money to trade currencies and to earn a profit for themselves. Their forex trading accounts are funded with their trading capital, and trades are executed online via brokerage platforms. While brokers offer leverage, in most cases, individual traders have lower available trading capital compared to professional and institutional traders.
How to Start Making Money Trading Forex with Zero Experience
Now that you know what a forex trader is, the big question is how can you start earning money as a trader with zero experience? To do so, you need to understand what you want to achieve with forex trading. What is your definition of success, and how do you want to go about achieving the desired success?
There are a few things a forex trader needs in order to start earning money despite having zero experience. Let’s take a look at this.
In our introduction, we told you that you could make money trading forex with no previous experience. Yes, it is possible. However, the only way to compensate for your inexperience is to get adequate knowledge of the forex market. An educated trader is a successful trader.
Some useful resources you can use include books on trading, market blog posts, webinars, trading courses, tutorials, and more. By leveraging these resources, you will gain a better understanding of the forex market, how it works, the factors that impact price movements, and what to do when trading the different currencies including major, minor and exotic currencies. You will also understand the basic principles of the forex market, such as how it moves and what makes it move, when to trade, how to make money trading, how to trade, and more.
By educating yourself, you will get used to the terms and jargon used in forex trading. However, mastering the terms will not necessarily make you a better trader; practicing what you learn will put you at an advantage and turn you into an excellent and profitable trader.
Some of the important things you will likely learn on your quest to understand the forex market include:
- Knowing how to identify reputable and leading brokers and how to use their trading platforms
- The other various asset classes you can trade asides forex, such as stocks, commodities, cryptocurrencies, indices and more
- The various trading platforms and the features they offer traders such as indicators, price charts, automated trading and more
- Spreads, commissions, leverages, and other trading tools and how to use them effectively.
From this process, what you are getting is not necessarily experience; it is standard education. Although education doesn’t equal experience, having in-depth trading knowledge will give you a massive head-start as a forex trader.
Set Realistic Expectations
As a new trader, you will start encountering problems the moment you start obsessing with chasing profits. The continuous anxiety might lead you to make costly mistakes that will result in losses.
Based on this, the first rule to becoming a successful forex trader is to forget about setting unrealistic goals and objectives. It is highly unlikely that as a new trader, you will earn loads of money from just a few quick trades. As a trader, operating in an overconfident and risky way can lead you to lose your initial trading capital.
When you set a high-profit objective, you are creating great emotional pressure on yourself, which could lead to an error or two that will cost you money. You might fall into the trap of taking excessive action or overtrading. You might also become fearful and start exiting trades at the wrong time. Most expert traders focus on earning the profit they have set, and they do not stress about earning more. More profits are simply a bonus.
As a forex trading beginner, it is best that you focus on learning a trading strategy and researching the trading tools that you will require to make your strategy work effectively. Learning forex techniques is a better use of your time than thinking about how to earn money. Learning more about forex trading will help you to come up with a lasting approach and will set you up to become a successful trader.
Choose a Reliable Broker
Do you know the basics of forex trading? Great, then you need to choose a reliable broker so you can execute your trades. During your learning process, you will learn that a broker will help you gain access to the financial markets. Without them, it is almost impossible to trade forex online.
When you carry out in-depth research, you will quickly realize that there are many brokers to choose from. You will also find out that there are scammers and reputable brokers. The scam brokers are out there to steal money from you and to make unrealistic promises of riches, while reputable brokers will give you access to the financial markets and provide you with the needed tools to excel. Reliable brokers will safeguard your personal interest and provide a transparent and secure trading environment for all parties involved. They will also offer useful trading tools that will allow you to carry out fundamental and technical analysis without stress. Top brokers will also provide secure banking options and responsive and professional customer service. Partnering with a reliable broker is essential for your trading success, especially if you are new to trading forex online.
Define Your Trading Risk Profile
Before you make a big financial commitment, you need to understand the fundamental aspects of the forex market. Accurately assess your available capital, read the various trader testimonials to determine a realistic return on investment (ROI), and adequately research the markets and currency pairs you wish to trade. You can start trading when you become comfortable with the metrics of your research.
Keep the following trading tips in mind before you start:
- Invest ONLY the amount you believe you can afford to lose without negatively affecting your standard of living
- Diversify your investment as you start making profits. It is not advisable to commit all your earnings in a single market
- Determine your risk profile. Are you a moderate, conservative, or aggressive risk taker?
- Get ready to lose. You will win some traders, and you will lose some. Hence, get ready to accept the wins and the losses. Even expert traders lose trades.
- Practice with a demo account before you start using a live trading account.
Practice Forex Trading on Demo Account
Most reputable forex brokers offer free demo accounts to their clients. The demo accounts are loaded with virtual money and have all the features and tools found under real market conditions. A demo trading account allows traders to learn the basics of trading without losing real money. With the demo account, you are free to try out what you learned during the education stage. You can try the various trading strategies you have learned about, how the platform works, and how the various trading tools work. It is with the demo account you get acquainted with the brokerage platform.
Choose a Trading Strategy
This is perhaps the most important stage once you become a trader. You need to develop an effective trading strategy that will help you to achieve your trading goals and preferences. In forex trading, there are no right or wrong ways to trade. What matters is having a well-defined strategy that can be useful in different market situations.
At times, a single strategy would work well for a currency pair in a certain market, while another strategy would be more suited for the same pair in another market or when the market conditions change entirely.
To become a successful forex trader, you should try harmonizing your online trading strategy with your risk level. Look into all the trading tools that you can use. Study the trading techniques that are logical to you and think about how you can deploy them in your strategy. Furthermore, you can study how the market behaves and how the forex industry works. Also, if you want to earn money trading forex, do not hesitate to conduct extensive tests by backtesting your preferred markets until you are sure of the strategy you wish to use. You also have the option of copy trading. Here you can simply copy the trading strategies of top traders in the market. This is an excellent way to learn how to trade the right way.
Set Your Stop Loss and Take Profit Order
Despite the level of confidence you have in your trading strategy, always set a stop loss order on your trades. The stop-loss order allows you to set a closing price on your trades. As a result, your trades will be closed once they reach the set level, even when you are not around. This means that setting a stop-loss level will give you the required peace of mind as you know, you are not losing more than the set amount.
However, keep in mind that a stop loss is not a guarantee as there will be circumstances where the market will become volatile and this could lead to major price changes and even price gaps. When this happens, the stop-loss order might not be executed at the set level, but it will be activated the next time the price of the pair reaches that level. This is known as slippage.
The take-profit order is also widely used in the forex market. It allows the trader to end a position automatically when the price of an asset reaches a predefined level.
Keep Your Emotions in Check
While this might sound simple, it isn’t. Emotions have a way of having a negative impact on traders. Some traders view the forex market as something they can beat, and when they start losing, they become disappointed, frustrated and desperate.
You should know that forex trading isn’t a game and shouldn’t be treated as such. It is a financial activity that deals with the analysis of the markets and discipline. You shouldn’t blame the market or worry about losing valuable trades. To become a successful currencies trader, you need to understand the mechanics of the forex market, trust your market analysis, and follow the rules and strategy you put in place. This is the main key to reaping the benefits of the market. Emotions can affect a trader’s experience. Hence, it is crucial to set them aside and not involve them in the trading process.
If you are losing, do not trade. Similarly, don’t trade with excessive confidence and excitement. Know about your mental state before you start trading as excessive confidence can lead to massive losses.
The best way to prepare to start trading with real money is to test your skills using a free demo account. Instead of starting trading directly and risk losing your capital, you can practice with the demo account until you have learned enough to move to live trading.
Deposit Real Money and Trade Live
After mastering the basics of forex trading and the various money management strategies, you are now ready to deposit real money into your trading account. You can then start trading to earn real profits. There are some things you need to check before you step into the trading arena.
- Eliminate emotions from the trading process and find a system that works for you instead of using emotions to react automatically.
- Let the trading strategy and risk management techniques do the work for you.
- Feelings such as excitement, greed, fear, and anger will cost you your capital if you allow them to.
- Stick to your trading strategy and obey the money management techniques as well as your risk management.
Keep Up with the Markets
To become a successful forex trader, you need to stay up to date with market news. Most market movements are driven by news from the financial markets. Political events, central bank announcements, and more usually drive the forex market. This is the part we call fundamental analysis.
Even as a technical trader (a person that makes trades following chart analysis of a financial instrument), you still need to pay close attention to the fundamental news since these events are key indicators of market movements. Checking an Economic Calendar can help you set your orders according to current events. Even if your technical analysis works accurately, the fundamental news can finetune your market analysis.
Develop a Trading Plan
We talked about discipline in trading forex and coming up with a trading plan would make it easier for you to become more disciplined. You can do so by putting in place your trading routine. To be a successful forex trader, you need to come up with strict and sometimes flexible trading activities. This will help you to reduce the risk of unforeseen changes in the market.
Most new traders develop limiting trading habits. Take the time to understand and formulate your trading plan and stick to it. Then check if changes need to be made and adapt your trading plan accordingly.
Frequently Asked Questions
How much money do I need to start trading currency pairs?
There is no set amount to start trading forex even as a beginner. The minimum amount depends on the broker you are using and your trading strategy.
What is the best forex trading strategy?
There is no trading strategy that is superior to the other. The various trading strategies work under specific market conditions and for certain currency pairs. Hence, as a trader, you have to test the strategies that work for you at a particular time and be flexible enough to make changes if the strategy no longer brings in profits for you.
Can I lose more than I invest in the FX market?
Normally, you cannot. A broker does not allow people to lose more than they have in their trading account. They simply close the losing position when the account balance goes down to zero. In some cases, slippage or massive price gap might put a trader’s balance into the negative zone.
Should I use leverage as a new trader?
You can use leverage when you are confident in your trading abilities. Although leverage has the ability to massively increase your profits, the losses are magnified when they occur. Hence, it is best to be cautious about leverage and use this only when you are confident in your trading ability and wish to take more risks.
Is it possible for me to become a successful forex trader?
Absolutely. Forex trading is a profession that anyone can learn. However, the process doesn’t happen overnight or in a few weeks. You have to go through the learning and practicing processes before you become a professional and successful forex trader.
There are various steps you need to take to become a successful forex trader. Learning about forex trading can give you an advantage in place of a lack of experience. Also, developing a trading strategy can make it easier to take profits and limit your losses. Overall, it is vital to understand that the financial markets are risky but there are a lot of profits to be made. Negative experiences should not deter you. Instead, they should serve as a lesson towards becoming an experienced and successful forex trader.
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