Learning how to become a forex trader does have the same risks that trading in other markets has and with some crosses, due to volatility, the risks may even be more significant. There are many free tools that you can use to test and learn how to use data.
While you will need to start at square one, you can quickly become successful if you take your time to learn the forex market mechanics and the technical trading systems and most importantly, to work with the right people. Here are the four steps of how to become a forex trader.
The first step of how to become a forex trader is to find a broker. A broker is crucial because they help make sure that your money is being traded safely, especially in cases when the market is not stable. Some brokers will allow you to trade over the phone, but the phone calls will be recorded to ensure orders have been dealt with professionally and to deal with any perceived miscommunications between the broker and trader.
More importantly, brokers are there to advise a trader. Many traders will not access to full data sets including market rumors which can drive significant portions of the market. This is where the saying “buy the rumor and sell the fact” has originated.
Additionally, in today's markets, the majority of online brokers offer access to forex trading software, and this is a seriously good way of learning how to trade and testing out strategies.
The second step would be learning how to use the software. A demo account is recommended, as you do not want to be using your own money during the learning phase. This is called paper trading but do note; paper trading does not maintain the emotional ties to trading that you will encounter when trading your own money. This is very important; emotions such as fear can cause traders to cancel or modify perfect good trading strategies.
All the software today is designed to behave like the real market so that you can test out different trading strategies. This allows you to find the best trading software for you.
Some excellent platforms which offer real time demo software are Saxo Bank, Oanda and CMC Markets.
Research is a massive part of how to become a forex trader — learning how the FX market and trading works are critical. This is called market mechanics, and with this, you must learn to understand items such as the various styles and types of orders which are used for placing trades.
Going to market then and there is a spot order, and this is facilitated with a spread which is the difference between your bid and offer prices.
Risk management is completed with limit and stops orders, and these orders can also be used for entry position to take into consideration strategic entry points such as entering the market once a significant resistance area has broken.
Resistance and support levels are key areas on charts which signify where traders believe the market may turn but in any healthy market there will be opposing views, and as such, these are only maintained as long as the momentum and volumes are kept low. An increase in these two factors can signal a swing in the sentiment of that underlying cross.
This is the most challenging step of how to become a forex trader.
Trading signals are provided by numerous technical studies. Studies such as Relative Strength Index ( RSI) and Moving Average Convergence Divergence ( MACD ) used in conjunction with moving averages can produce strong buy and sell signals as long as strict compliance to the signals is maintained. Learning to understand how to generate and read these is best done on a demo account. There are hundreds of other signal generators utilizing many studies, and thankfully, software providers have produced excellent platforms which for a small fee can help a trader get ahead.
Some of these trading apps will place the trades for you and maintain strict adherence to the strategy which is needed to produce and maintain profits. As stated above, when emotions are involved, this can cause human error where with an algorithmic trading model, this is discounted.
Trading signals and strategies packages can help you monitor the market and let you know if you should buy or sell at that time. There are many options available, and each uses its type of marker to signal when to sell. Not every trader uses trade signals or a system, as they believe that they benefit from not getting mixed signals from the systems. However, trade signals are recommended since you have a clear picture of the market, and you can exploit the trading market if you use the right system.
As you can see from the small amount which is listed above, there are many factors which need to be learned but the basics of trading as a forex trader is the same as the majority of other financial markets and as such, learning how to trade in one provides you with the necessary skill set to approach different markets on a technical level, however, knowledge of the underlying instruments you are going to trade is a serious advantage even though some technical trading purists believe that this is not the case .