Learn How to Become a Forex Trader
Forex trading is accessible, exciting, educational and offers traders lots of opportunities. However, many people fail to become successful traders, and don't achieve good results in the FX market. In fact, a high percentage of Forex traders end up losing more money than they make. Learning to trade, not just Forex, but any financial market, can be difficult and is certainly not something that you will pick up in a day.
This article will teach you how you can become a Forex trader and how to trade on the live markets. Additionally, it will show you the best trading practices for beginners as well as providing actionable advice for both beginners and professionals alike.
What Is a Trader?
A trader is someone who places orders on the financial market. This could be on behalf of financial institutions, such as big banks, investment funds and hedge funds, or as an independent trader. Exchange orders, such as buying or selling stocks, are either in the trader's own name, or on behalf of clients or for the financial institution or broker that employs them. There can be further categorisation, depending on the assets being traded: Forex, equities, bonds, commodities, etc.
Traders who work for financial institutions or brokers buy and sell shares on behalf of their employer's clients, not with their own money. This means that rather than making a profit or a loss on their actual trading, they earn a salary as a trader. In this case, the trader takes virtually no risk in the market - it is on their customer buying or selling financial instruments to cover the risk. The trader's clients may be anything from individuals to companies that do not have a trading room of their own.
Those who trade on their own personal account are using their own money to attempt to earn profit for themselves. These accounts are funded with their personal funds and trades are executed through online trading platforms. Even though online brokers offer leverage, the amounts traded by home traders are much smaller than those of a professional trader. Since online trading is often done on the OTC (Over the Counter) market, the success of traders in their own accounts are only estimates.
Defining Success
Now that you know what a trader is, how can you become a trader? And then, how do you become successful at it?
When starting to trade, it is important to understand what you want to achieve from it, and how you define success.
This is something professional trader and coach Markus Gabel discusses in detail in our free webinar about becoming a successful trader below.
Set yourself a realistic and quantifiable goal. This could be something along the lines of, achieving a 20% annual return on your investment, earning 5000 USD of profit or getting a total of 100 pips per month. Whatever you decide, your goal should also be easy to measure. Something else which is important, is to set a goal that can be achieved over a long time frame - it is recommended to set an annual goal to achieve rather than a monthly goal.
Once you have set your main trading goal for the year, it is now time to start learning how to achieve it. The best way is to identify what resources are available to you. How much money are you able to use as a starting deposit? Do you want to become a full time Forex trader? Or are you just looking to trade on the weekends? These are some of the questions you should be asking yourself.
Once you have a clear vision, it is time to make your action plan. This plan should include the currency pairs you are planning to trade and the number of daily trades you are going to commit to.
This can feel a bit overwhelming for new traders, so the good news is that in this article we share our top 10 tips to help you become a successful trader.
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Ten Top Trading Tips For Beginners
1) Manage Your Expectations
As a new trader it can be easy to become obsessed with chasing profits and this will almost definitely lead to problems. The anxiety which surrounds chasing profits can cloud your judgement and lead to mistakes which will cause losses.
Therefore, our first bit of advice in your journey to becoming a master Forex trader, is to dispense with any unrealistic objectives. The prospect of becoming rich in just a few sessions of trading Forex is extremely unlikely and, believing any differently, may cause you to operate with greater risk, jeopardising your capital.
2) Define Your Trading Risk Profile
Before making any substantial commitments, get a good understanding of the fundamental aspects of the market. Assess your capital at hand, read trader testimonials so you have realistic expectations of returns and research the markets and currency pairs you are interested in. If you don't feel comfortable, don't invest your money in Forex, even if it might be profitable. This applies to any market.
However, if you think that your investment approach would be suitable for the Forex market, go ahead!
But make sure you keep in mind the following:
- Do not invest more than you can afford to lose
- Diversify your investment, it is recommended that you do not invest more than 20% of your total investment funds in any one market.
- What is your risk profile: Moderate? Aggressive? Conservative?
3) Choose a Trading Strategy
Once you have chosen to become a trader, the next step is to devise a trading strategy. There is no right or wrong way to trade per se, what really matters is that you define the strategy you will use.
Sometimes you will see that a particular strategy works well for a currency pair in a given market, whilst another strategy is more suitable for the same pair in a different market.
In order to become a successful Forex trader, try to focus on creating your trading strategy in line with your individual risk profile. Research trading tool, study techniques and think how they can be implemented in your strategy. Study how the market behaves and learn how the trading industry works.
Once you have a set strategy, don't forget to do extensive tests by backtesting your favourite markets until you feel secure in your strategy.
4) Control Your Emotions
Emotions can be the worst enemy for people who want to become Forex traders. To become a successful trader, you must understand the mechanics of the Forex market, trust your analysis and follow the rules of your trading strategy.
When trading, make sure you have a clear head and are making informed and rational decisions. Try to manage your stress levels. Of course, this is easier said than done, but it can be the difference between a successful trader and an unsuccessful one.
If you are down on capital, do not trade. The same goes for being excessively confident and excited after a winning streak - refrain from trading or make sure you are knowledgable about your mental state. Overconfidence can lead to great losses.
Trade Risk Free With an Admiral Markets Demo Account
One of the best ways to prepare yourself for the emotions of trading is by testing your skills on a free demo account.
Instead of heading straight to the live markets and putting your capital at risk, you can avoid the risk altogether and simply practice until you are ready to transition to live trading. Take control of your trading experience, click the banner below to open your FREE demo account today!
5) Use Stop Losses and Take Profits
No matter your trading style or strategy, you should always set a stop loss when trading. Both a stop loss and a take profit allow you to set a pre-determined closing price of your trade. Your trade will close automatically once the price reaches this point, even if you are not present at your trading terminal.
A stop loss can give you peace of mind that, if the market moves against you, you will not lose more than the limit which you have defined. A take profit, on the other hand, ensures that you exit a trade once you reach your desired profit level.
It is important to note, that stop losses are not a guarantee. There are occasions where the market behaves erratically and presents price gaps. If this happens, the stop loss will not be executed at the predetermined level but will be activated the next time the price reaches this level. This phenomenon is called slippage.
Depicted: Admiral Markets MetaTrader 5 - GBPUSD H4 Chart. Date Range: 3 August 2020 - 4 September 2020. Captured: 4 September 2020. Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
In the video below, you can learn how to set stop losses and take profits in both MetaTrader 4 and 5:
6) Keep Up With the Markets
Staying up to date with market news is vital! Many market movements are driven by news, central bank announcements, political events or the expectation of any of these. This is what's called fundamental trading.
Even if you are a technical trader, meaning someone who makes trades based on chart analysis of a market instrument, you should still pay close attention to fundamental news, since such events are a key factor in market movements. For example, if you have a reliable trading strategy and several technical indicators that indicate a long trade, check the forex calendar to make sure there are no upcoming events which could negatively impact your trade. Even if your technical trading strategy works perfectly, fundamental news can change everything!
Depicted: Admiral Markets Forex Economic Calendar
7) Do Not Overtrade
Overtrading is the result of seeing opportunities to make money trading where there are not any. Some people who want to be traders and become profitable in as short a time as possible, look for as many opportunities as possible to reach their goal and may deceive themselves into putting their money at risk.
There are two common types of overtrading:
- Trading too frequently
- Trading with too much volume
Trading too frequently, outside of scalping strategies, is a sure way to lose more money than you make.
In this Warren Buffett speech entitled " How to stay out of debt", Buffett espouses the need for strict discipline when investing:
"In investments, you have to wait until the opportunity is clear, because the markets are not a game. In baseball, sometimes you have to swing at many balls that you don't expect to hit, but this is not necessary in the financial markets.
There is no harm in waiting for more than a day for an opportunity to arise. You can simply wait until favourable price action arrives, and this shows that you really know what you are doing, and that is when you enter the game. You just need a couple of trades."
As a trader, it makes sense to follow this same principle in the Forex and CFD market. The lesson is clear: a trader does not have to make a lot of trades to be successful, they just need to make the correct trades.
When you are trading on a live account, you must have a strategy with specific, pre-established conditions for the entry and exit of trades. Follow your plan and do not trade on impulse.
The other type for overtrading, as stated above, is operating with too much volume. For many people, leverage is the culprit.
But is this true?
As we know, Forex brokers and CFDs offer significant leverage in their trading accounts. In principle, this exists to give traders the opportunity to earn higher profits with smaller investments. This gives more people the possibility to become Forex and CFD traders, and thus use the services offered by these brokers.
However, in practice, abusing high leverage is still very common among beginner traders who are tempted to maximise their profitability in forex. In reality, what they end up doing is maximising their losses.
High leverage does not inherently mean falling into error. Leverage is simply a tool that allows you to operate with larger trading volumes, resulting in the trades having a larger margin. This is a double-edged sword - if the market moves in your favour, your profits are amplified. If it moves against you, the same is true for your losses.
Trading with excessively high volume makes an account more susceptible to margin calls. The important thing is to learn to avoid overtrading and understand leverage.
8) You Are Going to Lose Eventually
Being a successful trader does not mean that you are going to win every trade. Closing each and every trade with a profit is simply not possible. Some professional traders may be consistently profitable, but there are none who can produce a trading statement which does not show a single losing trade. A successful Forex trader is merely someone who, in the end, wins more money than they lose.
Therefore, if, or more accurately, when, you lose a trade, do not despair! Even the most successful traders with decades of experience have confessed that less than 40% of all their trades are profitable, and some even cite less than 20%.
The trick to being a successful trader is for the winning trades are profitable enough that they produce enough profit to cover their losses and maintain a net positive.
It takes a lot of mental strength to admit ones mistakes in decision making and to close an order with a small early loss. But sometimes this is an absolutely necessary approach. On the other hand, it also takes a lot of strength to trust oneself and not close an operation with benefits too soon.
9) Develop a Trading Plan
You need to have a strict trading plan that covers most of your trading activity. This will help you reduce risk from unforeseen shifts in the market.
Many beginning traders develop negative trading habits. One example is the aforementioned overtrading, in which once a trader starts getting lucky and they continue to trade until they overdraw their account.
On many occasions, some traders have good trades due to chance or luck, which ends up reinforcing the negative habits in trading, resulting in it being nearly impossible to break these bad habits. How can this person become a successful trader if they repeatedly leave the result of their trades to luck?
Many traders believe that luck will not abandon them, but as everyone knows, luck is not infinite and when it runs out, it will create losses. Therefore, it is important to reinforce healthy trading habits, as these will help you achieve your goal of becoming a successful Forex trader.
10) Choose the Right Broker
Choosing the right broker is very important. If you are worried about the financial security or reputation of your Forex broker, it can be difficult to focus your attention on your trading. If, on the other hand, you have confidence in your Forex broker, this will free up mental space for you to devote more time and attention to analysis and developing Forex strategies.
Doing your research prior to committing yourself to a specific broker can go a long way and can help improve your odds of becoming a successful trader.
So how do you choose the right broker?
Here are some of the questions you should ask:
- Are they licensed and regulated by any government entity?
- Will your money be protected and insured?
- How will the customer service be once you open an account with them?
- Are they a good Forex broker for beginner traders?
- Do they have a good trading platform?
You should take time to research the best broker for you.
When it comes to our thoughts on the best Forex broker, we might be biased, but we think that Admiral Markets does a pretty good job.
Admiral Markets offers over 8,000 unique instruments to trade, with industry-leading offers in spreads, low commission, as well as negative balance protection to give clients the best possible experience and chances for success.
Over 100,000 traders have chosen Admiral markets as their broker, and it's thanks to their continued faith in our product and offering that Admiral Markets has been given numerous awards.
Admiral Markets UK Ltd. is a regulated broker and you can read reviews of the services provided on the FPA website.
Admiral Markets also offers extensive educational resources, such as free webinars where you can learn to trade from successful professional traders discussing market movements and the fundamentals of trading. Beyond the webinars, we also have an extensive library of educational articles for you to learn every detail, strategy, and fact about the industry and market.
So, if you're ready to trade the live markets with Admiral Markets, you can open a live account by clicking the banner below!
The Importance of Forex Education
The Forex market is constantly changing, so traders need to be able to understand the ups and downs of this market. There is no pattern, formula or set of rules to guarantee success in the Forex market. To succeed in this market traders need to be patient and diligent.
Understanding this is the first step in Forex learning. If you are interested in beginning your Forex education, why not consider taking Admiral Markets' Forex 101 course, so you can learn how to trade on Forex and CFDs with online lessons from experienced professional traders, completely free of charge.
Being able to talk about ratios, charts, indexes and trading should be regarded as a skill to aspire to when you start to learn about Forex trading. In the beginning, it can be tempting to rush through your learning, but it's important that you step back, take the time you need and advance at a sensible rate. You need to be able to constantly evaluate your performance, and understand the reasons behind your wins and losses.
Now that we've covered the basics, let's take a look at some steps to help you become a professional Forex trader.
Three Professional Forex Trading Tips
1) Develop Your Trading Strategy
The most significant step in long-term participation in the market is to build your personal trading strategy and to stick to it. Once you feel confident that you have done enough research on the instruments and technical aspects, developed a feel for the market with a demo account and defined a realistic risk profile, it is time to develop your strategy.
Whether you choose to be a forex scalper or long-term investor, the point of your strategy is to develop consistency and routine. As with every other skill or profession, practice makes perfect. The deeper your knowledge and experience with an instrument or technique, the more you will be able to make more consistently successful decisions within it. As you grow and develop as a trader, your strategy will likewise grow and develop with you.
2) Do Not Overtrade on a Demo Account
Many people want to become Forex traders, but many never move beyond trading on a demo account. The truth is that, in order to become a successful trader, your trades should consistently be making you money. And the only way they will make money is if you are trading with real money on a live account.
For this reason, it is vital to switch to a live trading account as soon as you are ready. If you are going to use a demo account, your goal should be to use the demo account to learn the ropes, with the intention of switching to a live account once you understand how to trade.
For new traders who are trading consistently using their demo accounts, usually a month is enough time to understand the mechanics of the trading platform and to begin your journey to becoming a successful trader.
It is advisable that traders should not postpone live trading for more than three months after they have started trading on a demo account.
3) How to Become a Forex Trader
Finally, once you've established your trading strategy, and switched to a live trading account, you should move on to the next steps:
- Develop a trading plan and always adhere to it.
- Set stop-losses for every trade. Otherwise, failure is almost certain.
- Don't risk more than 2% of your margin per single trade.
- Keep your emotions separate from trading.
- Never trade to compensate for your losses.
- Only trade when you feel it's the right moment.
- Do not be afraid of losses, every trader has them.
- Try to achieve more profitable trades, and have less unsuccessful trades.
This is the right path to follow in order to become a good Forex trader. You will be facing lots of losses and stress along the way, but don't give up. With effort and passion, you can make up for any bad experience you may have.
If you would like to learn more about professional Forex trading, you can do so with any of our educational webinars - many of which provide you with the opportunity to learn about advanced trading psychology and candlestick trading in the Forex and CFD markets.
Start Trading
It's not difficult to begin trading, you can begin with a demo account from Admiral Markets within minutes. Simply create a Trader's Room account, download and install the trading platform software of your choice, and begin trading! If you feel confident in your trading ability, you can instead go straight to a live account and upload your funds and start trading the markets in real time.
Being a Forex trader allows you to work from nearly any place with an internet connection. Hotel rooms, cafes, and—thanks to the latest technological developments—even more distant corners of the world. Forex traders are blessed with strong growth potential, and their lifestyle can certainly offer a lot of enjoyment. But if you've ever taken this path, you know this gift does not come easily. The sooner you start, the faster you'll get there.
Trade With MetaTrader 5
Did you know that Admiral Markets offers traders the number 1 multi-asset trading platform in the world - completely FREE!? MetaTrader 5 enables traders access to superior charting capabilities, free real-time market data & analysis, the best trading widgets available, and much more! To download MetaTrader 5 now, click the banner below:
About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
