What is a Forex Trader?
We detail the lives of forex traders—what they do, and how they do it.
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New to the forex world?
When you’re just starting out trading forex, it can feel like there’s a ton of information to sift through.
But don’t worry – once you grasp the basics and find a strategy that works for you, forex can be both educational and beneficial.
In order to become a successful forex trader, you’ll need to understand the market. But you won’t be the only newbie out there – forex trading volumes in North America rose 22% in six months last year.
This article will introduce you to the daily life of a forex trader, with practical tips for how you can find your bearings and start making money.
Let’s dive in! 🚀
- What Forex Traders Do?
- How Does Forex Trading Work?
- How to Become a Forex Trader
- Start Trading Forex in 6 Steps
- Risks of Trading Forex
- Conclusion
What Forex Traders Do 👇
Simply put, a forex trader trades foreign currencies based on their exchange rates in order to make a profit. This may sound complicated, but in reality it’s very simple. You probably already know that the U.S. dollar, like all currencies, fluctuates in value. Lately, the dollar has been strengthening as the COVID-19 vaccine begins its rollout.
So, what does a forex trader do on a daily basis? Well, first you have to understand that the forex market is complicated. It’s not like the stock market, with regular business hours; because the forex market is international, it runs 24 hours per day, from Sunday evening through Friday afternoon (relative to the U.S.). This means that it is not possible for an individual to keep a continuous eye on the forex market.
First, you’ll need to pick your markets. This means choosing a pair of currencies that you can monitor. Many U.S. traders begin with EUR/USD and USD/JPY, and will then expand with additional pairs that fit with these time zones.
Generally, a trader will look for updates as soon as they wake up to determine how their pairs have performed overnight, and review changes again at the end of the market day.
It’s important to research economic and central bank policies for the regions where you are trading, and review economic releases and news from these regions. Make sure you understand forex regulations in the United States too if you fancy trading USD—these factors may affect your trades on a daily basis, and it’s important to get a feel for how economic shifts affect your pairs.
So what does this look like in action? You’ll have some work up front: determining your pairs and researching the economies and governments of those regions. Then, day to day, you’ll sit down at your computer in the morning to review price charts and economic news—making trades without doing your research is one of the classic pitfalls of forex trading.
If all looks good, you’ll go about your day as usual and check progress again at the end of the day. Luckily, all of this can be done from home, or wherever you have access to the internet.
Because of the 24-hour market, it’s important to set a regular routine for yourself that revolves around the time zones of your pairs. Take time away from your screens and keep your life balanced so that you make smart, emotionally healthy trades.
How Does Forex Trading Work? ⚙️
About $6.6 trillion is traded on the forex market each day. As we’ve mentioned, it’s open 24 hours per day, with trading centers all over the world. The primary centers are located in Tokyo, London, and New York.
Similar to stocks, currencies are represented by three letters, such as USD for the U.S. dollar or JPY for Japanese yen. You’ll see your transactions in pairs: USD/JPY refers to the pairing between the U.S. dollar and the Japanese yen. You’ll see the U.S. dollar in a great many pairs, as it is the world’s reserve currency.
Let’s use an example to show how exactly you can make money from trading forex. Let’s say you want to pair between the Euro (EUR) and the USD. EUR is worth $1.2209.
You can therefore purchase 1,000 EUR for $1,220. You might see an asking price for the Euro of $1.2210, which offers a fairly low spread. The spread refers to the difference between the bid ($1.2209) and the asking price ($1.2210).
So, let’s say you make this purchase and buy 1,000 EUR for $1,220. Over time, EUR rises to $1.2400. If you sell your position, you will make a profit.
To calculate this profit, find the difference between your buying price ($1.2209) and your selling price ($1.2400): that’s $0.0191. Then, multiply that by your 1,000 shares: your profit is $19.10. If you had purchased 10,000 shares instead of 1,000, your profit would be $191—and so on.
How to Become a Forex Trader 💡
There are many great resources for new forex traders, and reading this guide means you’re already off to a great start! Anyone can become a forex trader as long as they have enough money to open a brokerage account—and many brokers require very low minimum deposits of around $100 to $200. If you already have a stockbroker, they may offer forex trading as well.
Before you open up a brokerage account, you’ll need to decide which method you want to use to trade forex. You can trade on an exchange regulated by the Commodity Futures Trading Commission, an exchange regulated by the U.S. Securities and Exchange Commission, or in the off-market (or “over-the-counter”) exchange.
You may have heard that some forex professionals use day trading strategies that keep them glued to the news day in and day out. If you’re interested in day trading, you’ll need to organize your schedule around the hours of major economic activity and the work of central banks. Day traders will watch fluctuations to find gaps in the market that they can turn into a quick profit.
However, you certainly don’t have to be a day trader in order to be a successful forex trader. You can keep your day job, enjoy your personal life, and trade forex all at the same time. You can even utilize some of the top forex apps to trade on your feet, monitor your trades, and set up stop loss orders.
How to Start Trading Forex (in 6 Steps)
Becoming an effective forex trader doesn’t happen overnight. If you’re looking to get rich quick, you’re more likely to fall prey to one of the predatory scams that took in Lina Khalid, who is now a leader in a growing group of young women of color who trade forex. Follow these steps to make sure you are making the best decisions for your financial future.
1. Education Comes First 🎓
We’re not going to sugar-coat it: 80% of day traders quit within the first two years. You don’t want to be one of them.
In order to avoid losing money, you need to have a strong understanding of the basic terminology and key concepts of trading forex. Make sure you have a full guide to forex trading at your disposal. If you know that you don’t have time for a deep dive into the forex market, you might want to go with a copy trading service such as eToro that will copy traders with a proven track record.
2. Pick a Strategy 📈
It’s not easy to predict how currency prices will fluctuate, but there are several techniques strategies that can help you. Familiarize yourself with range trading, day trading, swing trading, and more, and decide which strategy makes the most sense for you.
And don’t forget—a level, patient approach will always beat an impulsive, emotional trade. This is why sticking to a predetermined strategy and using it to evaluate each trade can be so helpful.
3. Choose Your Market 💱
Now, you’ll need to decide which market to trade in, which relates to what times you’ll be trading during. The forex market is open 24 hours a day, but each individual market keeps its own hours. Use this to determine what currency pairs you want to trade, and find your ideal times to trade forex.
4. Choose the Right Broker 🤝
When you’re just starting out, you want to find a broker with low processing fees, an easy-to-use trading platform, and a great reputation. The top forex brokers for beginners will also offer free educational resources. These platforms are rooting for your success, because they make money off your successful trades.
5. Test Your Skills with a Demo Account 🔎
Before you start trading with actual money, you can practice using a demo account. This is essentially a forex trading account that uses fake money—so you won’t see any actual profits or losses, just theoretical ones.
Put your chosen strategy into action and make some picks. Then, monitor how your position fares over the course of a few days or weeks. You can get used to the volatility of the market without the stress of having real money on the line, and fine-tune your trading techniques.
6. Start Trading! 🚀
Once you’ve gone through these steps, you are ready to start trading forex! Put some money in your account and be sure to watch the news in your target regions in order to make smart trades. Remember: patience and a level head will take you far in forex.
What Are the Risks of Forex Trading? ⚠️
There are certainly risks of trading forex. Even the best traders cannot avoid losses entirely, and your pairs may not pan out for you.
If you are trading forex with leverage, these risks can be amplified as you control greater positions. The top forex brokers will have negative balance protection to keep you from losing more money than you put in on a leveraged trade.
The Forex world is unregulated, which unfortunately means that there are scams out there. It’s generally not a good idea to follow someone who says they can use forex to get you rich quickly—forex is best played as a long game. Make sure you can identify a forex trading scam before pouring all your cash into a brokerage account.
Conclusion
When you’re trading forex, keep your eyes on the next ten years, not the next ten minutes. This means that it may take some time to see returns on your investments. That’s okay: it’s better to wait to see returns instead of losing your entire margin tomorrow on a risky trade!
You can get started in forex trading with $500-$1,000. With leverage and a solid strategy, forex traders can potentially make of what they invested 5-15% per month.
Forex Trader FAQs
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How Long Does it Take to Learn Forex?
A person brand new to forex trading can learn the basics in a matter of weeks. This is enough to get you started trading. Then, learning the complexity of the market and the regulations and economics of specific regions can be a lifelong learning process.
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Can I Trade Forex with $100?
You certainly can! Many brokers have low minimum deposit requirements, meaning you can pick a pair and invest $100. If you are going to trade forex with this amount, we suggest not using leverage or using a low leverage ratio. This will keep your margin from being eaten up by a small fluctuation or a transaction fee on a large position.
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Is Forex Trading Illegal?
Forex trading is perfectly legal in most countries. However, some forex brokers are unregulated. This means that the market can be prone to scams, and you need to learn how to avoid these scams.
0.75
N/A
Variable fees
N/A
starts from $50
$0
47
105
N/A
0.9
N/A
0.363
$0
$250
105
93
Average spread EUR/USD standard
0.75
N/A
0.9
All-in cost EUR/USD - active
Variable fees
N/A
0.363
Minimum initial deposit
starts from $50
$0
$250
Total currency pairs
47
105
93
Demo account?
Social / copy trading?
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eToro USA LLC does not offer CFDs, only real Stocks and Crypto assets available.
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All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.
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