The forex (foreign exchange, or FX) market is one of the largest in the world and, as such, attracts huge numbers of professional and amateur traders. If you have a drive to succeed, a willingness to take risks for the prospect of big rewards and an analytical mind capable of identifying and predicting patterns, you could make a career out of forex trading.
What is Forex Trading?
According to IG Group, this specific financial asset class can be defined in the following way:
“Forex, or foreign exchange, can be explained as a network of buyers and sellers, who transfer currency between each other at an agreed price. It is the means by which individuals, companies and central banks convert one currency into another”
Currency trading is a volatile business; more than $5 trillion of currency is converted around the world daily, leading to considerable price movements. This means that there is a high risk involved with forex trading, but also considerable profits.
There are four key forex trading centres in the world, located in different time zones: London, New York, Sydney and Tokyo. This means that, unlike other trading types such as commodities or shares that are held on exchanges, forex trading can occur 24 hours a day in an ‘over-the-counter’ (OTC) market.
How to Become a Forex Traders
If this high-risk, high-reward work environment appeals to you, here are the basic steps you need to take to become a forex trader, whether as a part-time hobby or a full-time career.
Open an Account with an FX Broker
The first step to get your forex trading off the ground is to open an account with a leveraged broker - this list reviews the top nine platforms. A trusted online broker will interact directly with the bank for you, as well as provide useful market insights, tools and educational resources.
Plan Your Trading Strategy
Once you’re in the race, you need to work out what kind of forex trading strategy will suit your budget, timescale, skill level and personality traits. Here are a few of the basic strategies:
- Day trading - involves buying and selling assets within a single trading day, allowing you to see fast profits from small price movements.
- Scalping - a type of day trading that allows you to take small profits regularly by opening and closing multiple positions for short time frames throughout the day.
- Swing trading - a medium-term strategy that aims to open a position when the market is predicted to change direction and gain profit from the shift in price.
- Position trading - a long-term strategy that disregards small market fluctuations in favour of large market movements over a longer period of time.
Whichever strategy you favour, it’s important that you carry out regular market analysis to predict the tendencies of the market and keep abreast of developments in world trade and politics that may affect the value of currency, such as financial bubbles and flash-crashes.
Practise on a Demo Account
Most trading platforms will allow you to practise your chosen strategy on a risk-free demo account. This is a perfect way to learn to trade and use the tools provided by your chosen platform without having to commit any capital.
Open, Close and Monitor Your Positions
When you’ve done your research, trialled your strategy and grown in confidence, you will be ready to add funds to your trading account and open your first position for real.
Forex is the largest financial market in the world, and as such offers a wealth of opportunities for those with a drive to succeed. If you’ve got the right mindset, it offers the possibility to make large profits and sharpen your financial acumen as a trader.