All it takes for someone to become a successful forex trader is to have a little money to invest and some patience.
However, not many reach the status of a successful trader’ and end up losing their money. So how to become a profitable forex trader in 2022?
Forex offers many exciting opportunities to earn great rewards, but it also comes with many risks. This is why you need a favorable risk and reward setup.
But this is only a part of becoming a successful trader. There are many factors that contribute to the making of a profitable trader in Forex.
The Forex market is a complicated subject, and you can’t learn everything overnight. Becoming a forex trader is a long process that could take months and will demand a lot of hard work.
If you are someone who is interested in trying your luck with forex, here’s our step-by-step guide that will help you start trading on the right foot.
Table of Contents
What is a forex trader?
Traders are the people who place orders on the financial markets independently or on behalf of a financial institute. These traders can buy and sell assets such as forex, equities, stocks, commodities, and bonds.
In this case, we are focusing on traders who make Forex their main trading asset.
As with any other trader, becoming a forex trader can be done under institutes or individually. When going independent, traders will have to use their accounts and finances to give them a chance to earn profit.
Online trading platforms are the most common place where these kinds of trades take place, mostly in an OTC manner. Most of the time, these online trading platforms offer leverages to the trader giving them a chance to increase their profits at a higher risk.
On the other hand, traders working with financial institutes place trades on behalf of their clients by spending the institute’s funds.
In scenarios like this, traders do not gain profits based on the trades but from the salary paid by the financial institutions that they are working for. This enables these types of traders to take high-risk traders as they don’t have to worry about losing their funds.
What does a forex trader do?
As mentioned above, forex traders buy and sell forex pairs independently or under a financial institution. They build up various strategies depending on the market status, trends, profiting method, and trading style and follow them to maximize their profits. These strategies vary from trader to trader, and using a forex trading strategy is necessary to become a successful forex trader.
Building and using forex trading strategies are very important to all successful forex traders. These will help you to get the most out of the trades that you are engaged in.
The duties of a forex trader also include doing research and analysis on any given forex currency pair. Traders must also focus on finding situations in which the forex trader has the highest chance of returning a profit.
This will allow you to become a forex trader that has more winning trades than losing ones.
Traders who perform under financial institutions have a different outlook on the market.
Since they are not using their funds to perform trades, they can trade the way the client asks them to. These types of forex traders get paid depending on their position in the institutes. There are three types of institute-based forex traders.
- Currency researcher: Studies price movements and patterns to write content that can influence trading decisions quickly.
- Professional trader: Makes trade decisions based on their client’s goals and works to manage the corporation or individual accounts.
- Forex industry regulator: Holds many positions on the forex market and works towards preventing any fraud from happening.
How to Become a Forex Trader? | 5 Steps to follow
With the help of the internet and online brokers, anyone who is interested can work towards becoming a forex trader.
Even though this is true, traders must first understand that forex trading is a field with high risk. So, to avoid getting into any issues, you will have to be prepared.
Here are a few steps anyone can follow to become a forex trader.
Step 1 – Educate yourself
Having a good understanding of what the forex market is and how it functions is the first step to becoming a forex trader. This can be easily done by educating yourself about all things necessary about Forex.
As with many other fields, forex trading is an activity that becomes much easier with the more knowledge you have.
Learning about Forex has become much easier with the internet and the educational sources available on it. Traders can refer to countless number of articles, blogs, e-books, and courses to sharpen their forex knowledge. Learn everything about forex trading, brokers, currency pairs, and platforms to get an edge over the other traders.
Important- Here, you need to learn about how to perform a fundamental and technical analysis along with other basics.
Step 2 – Get your trading capital ready
Traders do not need to invest a large amount of money as the capital when starting forex trading.
The capital, most of the time, is the funds that you need to keep in your account for opening a position. The amount of money that you invest changes relative to the margin available.
For instance, a 1% margin on a $100,000 position will require you to put $1000 as the capital.
One thing that you should keep in mind is that the lower the deposit, the higher the impact on losses for your trading account.
To lessen the effect of losses, having a solid deposit as capital is needed. Leverage also plays a large part in forex trading and the investing amount of funds.
Step3 – Find a broker
The next step to becoming a forex trader is to find a broker that is both reliable and profitable. Forex brokers are where most of the Trading takes place, and there are a lot of brokers to choose from. Each trader comes with various benefits and drawbacks, and you should do thorough research to select the ideal one.
A lot of things go into the selection process of a solid forex broker. Traders should pay attention to things like leverage, minimum deposit, demo account availability, risk management, spread, and fees to find a broker that is compatible with them.
- Pro Tip: Since we are talking about traders who are new to the field, it is better to look for a broker that is beginner friendly. Icon FX and eToro are great forex brokers for newer traders. Moreover, they both offer great features, low fees, and good customer support to help you become a forex trader.
Step 4- Choose your trading strategy
Finding a forex trading strategy is equally as important as selecting a forex broker. The trading strategy that you implement will dictate the way you trade and the profits that you earn.
Furthermore, traders have the freedom to choose from a large pool of strategies, and it’s up to the trader to decide what suits them best.
The used trading strategy can change due to multiple factors. The length of the trade, the number of trading opportunities, and the risk-to-reward ratio are some of the deciding factors here. These strategies can also be built upon news-based events, trends, and fundamental or technical analysis.
A good forex trading strategy can help the trader to get better results, stay focused on a goal, and also will help to measure their performance.
It’s better to select a simple and profitable strategy and leave the complex strategies for the later stages of your career. Do thorough testing of the selected strategy using demo accounts before implementing it. Under the correct circumstances, a good trading strategy can help you become a forex trader who is successful.
Step 5 – Start Trading
When the previous stages are done, all that’s left for you to do is trade.
Now, you should have a broker, a forex trading strategy, the necessary knowledge, and the capital needed to perform a trade. If you are unsure about at least a single factor, work on it before starting to trade.
Do fundamental and technical analysis on the market and keep an eye out for new trends and news. When the right opportunity comes, enter a trade with a clear goal in mind.
This is where the forex trading strategy that you’ve selected comes into play. Here the exit point of the trade depends on the strategy that you chose.
Since the forex market is the largest and the most liquid financial market, you can stand to have a higher chance of earning a profit.
Tips to become a Forex trader
Keep up to date with the market.
Being informed about all the latest developments in the forex market is something that all good traders do. Since most of the market movements occur related to central bank announcements, news, events, and trends, keeping up with them can prove invaluable.
This falls in line with fundamental analysis rather than technical analysis. With this, traders will be able to place more profitable trades and jump on trends before other traders. Remember -having an edge over the competition can make or break your forex trading career.
Understand that you can’t win all the trades.
Winning every trade as a forex trader is a feat that is almost impossible to do. Even the most successful traders are not winning every trade that they open. What defines a successful trader in the forex field is by having more profits exceeding losses at the end.
So, if even the most successful traders can fail, don’t worry if you lose some on the way. Patience and persistence play a large part in forex trading, and the ones who remain in the market will have more experience. In addition, you can always learn from your mistakes and become a forex trader that plays for the long run.
Keep expectations at an achievable level.
A lot of traders go into forex trading with unrealistic expectations thinking that this is the easiest way to make a fortune. Coming into trading with a mindset like this can severely affect the way that you do trading.
There are some cases where the opposite can be true as well. Having very low expectations can force the trader to miss out on profitable opportunities. So, make sure to keep expectations on a realistic level and avoid the mindset that Forex can make you rich in just a few trades.
Overtrading can affect your trading experience negatively. This tip can correlate with the previous one as unrealistic expectation plays a big part in overtrading. Traders who want to get rich as soon as they possibly can are the ones that fall victim to overtrading.
Trading with too much volume and Trading too frequently can lead to overtrading and risk the financial stability of the trader. Outside of forex scalping, trading too frequently is not advised to people who are aiming to become forex traders.
Use stops losses and takes profits.
Setting up a stop loss regardless of the using strategy is a smart thing any trader can do. The practice of setting a predetermined closing price of your trades so that they close automatically is what this does.
Take profits to act the same way but close the trade when it reaches a certain level of profit. Both of these are great ways to prevent any unwanted fund leaks, especially if you are a trader who is unable to pay attention to the forex market at all times.
The FX market offers you opportunities round the clock to make money with a minimal initial investment. However, it requires good education, and great discipline and patience are essential to make profitable trades in the long run.
Even if you are an absolute beginner, there are many free and paid resources out there, including our blog, which you can use to learn the basics. Also, there is a wide range of tools available so that you can improve your trades without having to analyze everything by yourself.
Since now you know how to become a successful forex trader, we hope you will follow these steps and have a better chance of becoming a successful trader.
Yes, but not overnight. Making a substantial profit with forex trading can take a long time.
A large fund is not necessary to become a forex trader. Often a trader can open a position with a 1% margin of the trade.
Self-study is the easiest and cheapest way to learn about forex trading. There are a lot of educational sources available in the form of articles, video tutorials, and courses.