To become a successful Forex trader it is crucial to do necessary prep work before entering the foreign exchange market. Trading Forex has become easier with time because you can conduct the trades through the internet.
A Simple Guide For Becoming A Forex Trader
Being unfamiliar with the basics of Forex trading can result in unsuccessful trades. Practicing sound money management techniques can help in preserving trading capital.
To become a forex trader it is essential to go through the following steps.
Get familiar With Forex Terminology
The Forex market is not like any other financial market in the world. The traders have unique jargon terms that are only relevant in the foreign exchange market. If you are looking to enter the Forex trade then it is essential to know the Forex terminology.
Some common terms to get familiar with are:
- Currency pair is a term for two currencies. The first currency mentioned in the base currency and the one mentioned after it is the counter currency. If EUR/USD is a currency pair, the EUR is the base currency that is quoted against the U.S dollar.
- CFD or Contract for Difference is for several overseas markets. It is not allowed in the U.S. but Forex is a global marketplace and you are going to come across the term. If you use CFD and manage to sell for more than you paid, you get to keep the profit. But if you sell at a loss then you pay the difference.
- Commodity currency is used for countries whose economy relies on exports of commodities like Australia, New Zealand, Russia, Canada, etc.
- A derivative is a financial tool. The tool derives its value from other assets such as currency. Forex derivatives are commonly used in trading because they have the capability to combine values of multiple currencies and trade shares accordingly.
- The long position in Forex trading is taken when you expect the exchange rate of the base currency in your currency pair to rise.
- Short positions are taken when the exchange rate is expected to fall.
- The exchange rate is what you have to pay for a single unit of the base currency.
- Leverage or margin is the size of the trading position you get to control with the given money placed in the trading account. The deposited amount is held by the broker as collateral against potential trading losses
- The broker is the intermediary who is responsible for executing transactions on the trader’s behalf.
Connecting To The Internet
Forex trading requires a reliable internet connection to make trades. The internet connection should have maximum interruptions to ensure seamless trading through an online broker. . Having a smartphone or a tablet or computer because without these devices it is not possible to connect to an online broker and run a trading platform.
Losing an internet connection while trading can lead to profit loss if the market goes against what you expected.
Finding A Forex Broker
You can open an account with an online Forex broker from anywhere in the world. But before opening an account take time to read the requirements so that you can choose the one that is going to accept you as a client.
Choosing the right broker is an essential step of Forex trading. A reliable broker will be able to keep the money separate from its own money and operate in an organized and well-regulated manner under the supervision of a reputable regulator.
Opening And Funding Trading Account
When you have chosen a broker, it is time to open a trading account and add some funds to it. Most of the online brokers offer a variety of options to fund the Forex account. You can use a debit card, transfer from Paypal or Skrill, or bank wire transfers.
Selecting A Forex Trading Platform
Different brokers use different Forex trading platforms. You need to download the online trading platform after discussions with the broker you choose. Most of the brokers either support third-party platforms or choose a proprietary trading platform.
After going through all the above-mentioned steps you will have a Forex account and be ready to start trading. To test the reliability and quality of services of brokers and Forex platforms, fund a demo account with virtual money. Demo accounts are helpful in practicing the trade and testing strategies without the danger of losing any funds.
The foreign exchange market is the world’s most active market. If you are going to invest in Forex trading it is vital to get familiar with the market so that you have the knowledge to understand its trends and make profitable decisions.