Becoming a Forex Trader: A Comprehensive Guide
What is a trader? A trader is one of the most used words in the financial vocabulary. It seems easy: if you trade an asset, you can be called a trader. Still, not everyone who has ever tried market trading can be called a trader. The trader term has many hidden aspects inside. Let's figure them out.
Who a Trader Is: Definition
Before we teach you how to become a trader, you should understand the meaning of a trader. There are two terms that are often used simultaneously. They are an investor and trader. Where does the difference lie? What is a trader, particularly? In general, both terms can be used. However, if we need to specify, we should separate them.
An investor is a person who puts their money in an asset for an extended period and waits for the profit. Usually, investors open positions in one direction. If they own the security, they sell it. If not, they buy it and wait until the price rises to sell and get the profit.
A trader is a person who speculates on the asset’s price.
What does a trader mean? A trader is a person who speculates on the asset’s price. It's possible both to buy and sell an asset at once without owning it. The idea is to catch the market direction and trade according to it. The trader can open as many positions as his/her funds allow.
There are many classifications of traders. We will start with independence.
Level of Independence
Independence shows whether the trader operates on behalf of others or for a personal result.
Trading on behalf of others. Some traders work on behalf of a client. They don't spend their own money but trade with the client's funds. Their profit is the commission they take for the service. Although they don't risk their money, they risk their reputation.
Such traders should have solid experience and a high rate of successful trades. Usually, they work for an institution or a company, which owns enough money to enter the real market. Let us remind you that one standard lot equals €100,000.
Trading on behalf of others is the second step in your trading career that requires professional education, long-term experience, and confirmed skills.
Independent trader. There are also those people who trade without any assistance except for the help of a broker that provides an online platform. In such a case, traders risk their own money, while profit and loss are also born by them. It can be your first step in a trading career, where you gain enough experience before working for an institution. Still, many traders don’t aim to work for others and make their potential income using their own funds. In this article, we will talk about them.
The next classification is the trading style. Traders use various timeframes, as well as open and close trades differently. Thus, their approaches to trading vary according to their purpose.
- Intraday trader. An intraday trader is the one that opens and closes positions within one trading day. This way of trading works well if you don't want to handle a swap.
Swap is a small sum that is either charged or paid for keeping the trade overnight. If you use a MetaTrader platform, it can be easily checked there. Open the “Market Watch” panel, click on the currency pair you want to trade, choose “Specification”. The window with the information about the instrument will appear. There you can find the size of the swaps for long and short trades.
- Swing trader. A swing trader is the one who waits for the market to change its direction. Swing traders use technical analysis to predict the price reversal and trade within a trend. Usually, they hold a trade for longer than a day as the strong trend forms over the course of several days.
- Scalper. The purpose of the scalper is to make a potential profit by opening many trades within a day. The number of positions may amount to hundreds. Such a trader uses small timeframes. The risk is hidden in the spread, a commission paid to a broker for opening a position.
- Momentum trader. A momentum trader is the one that determines the strong trend and trades within it. The asset should have a significant volume. The trade is kept for at least several days regarding the chosen timeframe.
Traders use various types of market analysis to predict the price direction.
- Technical analysis. Such traders rely on past market movements. They use technical tools such as chart and candlestick patterns and indicators that reveal the market direction.
- Fundamental analysis. Fundamental traders believe that market sentiment affects the price direction. The market mood is based on current events, not past movements. To predict the asset's direction, they read the news and check the economic calendar. Positive events will lead to the rise of the asset; negative events will cause the depreciation of it.
- Mix. Nevertheless, some traders prefer combining both methods. They win the most as technical analysis can't measure the current market sentiment properly, and fundamental analysis doesn't include indicators that could predict certain price levels.
Tools to Become a Trader in Financial Markets
Many newbies ask how to become a trader. Fortunately, to become a trader, you don't need specific certification, qualification, or equipment. But the situation might be different if you are not going to work for a financial institution and present other people's interests.
Generally, all you need is:
- Computer or smartphone. Most of the online brokers provide a convenient mobile version of the trading platform. Thus, you can trade whenever and wherever you want, just by having an Internet connection.
- Basic knowledge about the financial markets. Although you don't need to pass tests and provide certificates to a broker, it's vital to know how the FX market works. Without it, you will lose immediately.
- A reliable broker. Unless you have enough funds to trade without a broker, you should find a reliable brokerage firm to present your interests and open trades on the market. A trustworthy broker provides clear conditions, has international certificates, and has many satisfied clients.
- Some funds. Although brokers provide leverage options, you should have at least €100 to enter the market. Remember that the funds you have determine the size of trades, the amount of possible profit, and the ability to handle unpleasant market situations when the market moves against you.
Leverage is the kind of fund support the broker offers to a trader to open more significant trades. It's not a loan, so the trader doesn't have to return the money.
How to Become a Successful Trader
Well, you see that you can become a trader without difficulties, but it's not enough to be successful in this sphere. Now, let's determine what makes someone a successful trader. The following steps will lead you to successful trades.
Step 1. Decide who you are
Before entering the real market, you need to have a strong strategy to define when you should enter and exit the market. The strategy won't work if you don't know what approach to use.
Your trading approach will depend on the amount of time you are ready to spend on trading.
It's vital to understand whether you consider trading a hobby, part-time or full-time job. How can you scalp if you are busy with your main job? What will you be occupied with if you use a momentum method that allows you to leave the computer for several days?
If you still doubt what approach suits you more, you should practice on a demo account. A Libertex demo account provides a wide range of trading instruments and tools that will help you understand whether you are a scalper or trend trader.
Step 2. Required skills
Specific skills also define what a trader is. As soon as you know what type of trading suits you more, you can define the skills you should be equipped with. It's essential to understand how to deal with market volatility, enter the market at the perfect time, determine the best market conditions, etc. Also, you should know how to analyze the market using fundamental and technical methods.
Step 3. Choose the market
The Turkish lira is an exotic currency, so it's risky. Thus, its' highly volatile. Moreover, it's unlikely economic events will affect its direction as much as they impact the Japanese yen. The main factor that will determine the strength of its movements is the news. Geopolitical events and conflicts affect its direction. If you are a newbie trader, avoid exotic currencies as you are not skilled enough to deal with enormous fluctuations.
Unlike the TRY, the Japanese yen is a safe-haven asset that is supposed to rise in the time of adverse events and fall when the market is calm. The USD/JPY is one of the major pairs that can be a good option for beginners.
Choose major currencies and avoid exotic ones if you are a newbie.
Step 4. Learn daily
Although it seems to be the first step on your way to success, we decided that you should have assets you want to trade and know what approach fits you more in order to focus on it.
Trading is not just opening and closing positions. Trading requires specific knowledge to be successful. That's why you should practice different strategies, learn how to analyze the market, and know all the basics of trading such as spread, swap, indicators, etc.
Step 5. Count risks and rewards
It's essential to understand how much you can earn and lose. To know how successful you can be while trading, you should learn risk management, leverage, and position size. These factors determine the size of the risk you can bear and define your potential profit. Learn about take profit and stop loss orders that will help to frame your trades.
Step 6. Trading strategies
It's time to create your own strategy or choose an existing one. The trading strategy is the set of specific conditions that determine entry and exit points. These conditions can be based on particular actions of trading indicators, breakouts of distinct levels, or the creation of chart/candle patterns.
Step 7. Practice on a demo account
It's advisable to practice on a demo account before entering the real market. The demo account's main advantage is that it fully resembles a real one: the same assets and instruments. As you don't need to deposit real funds, remember that your profit won't be real, but it will show whether your strategy works.
The only disadvantage of the demo account is the lack of real emotions. When you know you won't lose real money, you don't focus enough on the market. Yet, after you are fully equipped, you can enter the real market and try trading real funds.
Trader Psychology: Tips
What is a trader talking about psychology? Another crucial point we should talk about is the psychology of traders. You won’t learn how to become a trader if you don’t figure out the psychological factors that may affect your trades. You may think that it's something unnecessary, but many traders make mistakes because of the wrong psychological approach. Let's consider what qualities of your character you should avoid to become a successful trader.
- Too confident. It doesn't matter how long you have been trading; you can never be 100% sure of the market direction. You should always use stop loss orders, never trade against the prevailing trend and avoid placing trades that exceed your funds. Markets are tricky, and you may lose all your money in a matter of seconds.
- Lack of attention. When you are a newbie trader, you pay attention to each small detail. As soon as you get a little experience, you will start to believe you know everything about the market and can predict its direction without mistakes. You ignore significant factors that can affect the market movements. Never lose control, never leave trades without monitoring them for a long time.
- Game. Some traders believe trading is just a game. It's not a game; it's a daily job if you want to have successful trades.
- Concentration on losses. Some traders can't deal with losses and focus on them instead of thinking about new opportunities. Every trade includes an equal chance of loss and profit. If you lose once, check your mistakes, record them, and move on.
- Fight with the market. It's a dangerous mistake when trades concentrate on their losses and invest more money in the losing trade, trying to persuade the market that they were right. If the market moves against you, set a stop loss order, and don't let the trade exceed it.
Only professional traders can use trailing stop loss and take profit orders. If you are a beginner, you may be too confident in your forecast and miss the moment when the market passes the return point.
What Is the Potential Return for a Trader?
No one can answer this question as trading is not a job with a fixed salary. Your potential income depends on many factors. These include deposits, the asset you trade, trading approach, and the moment you enter and exit the market.
However, your deposit has an effect on final results. We consider options that are safe and fit for newbies. We will consider 0.01 lot size as the standard lot is €100,000, and this sum is too big for newbies.
- €100. Imagine you deposit €100. Talking about the risk-reward ratio, you should remember that the risk shouldn't be higher than 5%. We will use the medium size, which is 3%. Trading 0.01 lots, the stop-loss order can be placed 30 pips from your entry point. So, you risk €3. Take profit is three times bigger than the stop loss as the perfect risk-reward ratio is 1/3. So, the take profit is 90 pips. 90 pips equal to €9.
- €500. The more you deposit, the more substantial the possibilities will be. The risk is the same – 3% or €15. With the same position size, each pip costs €1.5. If you need faster results, you can increase the position size. A higher reward should be accompanied by a broader stop-loss order. For example, 0.1 lot. Thus, each pip will cost €1. The risk can be increased as well. Let's imagine it's 5%. In this case, the stop loss costs you €25, but the profit will increase to €75.
As you can see, you don't need lots of money to start trading. Your reward can grow without investing significant funds. So, how much you want to succeed and are ready to lose is totally up to you,
What Being a Trader Is: Benefits and Limitations
Knowing what a trader is isn’t enough to understand what pitfalls this activity may hide. If you are still unsure whether you are ready to be a trader, check the limitations and benefits of this activity.
Win-win strategy. As we said above, you can place sell and buy orders without owning the asset. It allows you to trade whenever you want and whatever asset you prefer.
Time. Markets fluctuate significantly. If you don't monitor the price for a long time, odds are you will lose most of your funds.
Small funds. If we compare investing with trading, for trading, you need smaller funds. No matter whether you trade currencies, cryptocurrencies, stocks (CFD), or metals (CFD), you can enter the market having only several dollars as online brokers provide leverage.
Smaller gains. If you trade daily, you have a chance to earn the amount that will satisfy your expectations. However, all profits are followed by losses due to market volatility. Investing may provide higher rewards, but risks still exist.
No specific knowledge. Being a trader is much easier than being an investor. Investors are supposed to be professionals with strong skills. At the same time, any ordinary person can become a trader.
Please remember that if you want to increase the possibility of potential profit, you should upgrade your skills daily.
Losses. Although it seems easy to define the market direction, many traders fail because of several factors. First, the market is highly volatile. If you trade within a short period, there are risks the market turns against you.
Second, many traders undervalue the importance of knowledge. Only by practicing and learning daily, you can achieve the results you want. A Libertex demo account can help you to gain the required skills.
Rapid rewards. Unlike investing, trading submits immediate rewards. You can trade on minute timeframes and may get potential profit within a day.
You have learned what a trader is. To become a trader, you don't need specific skills or equipment. Everyone who wants to trade can do so. However, trading isn't a game; it's a job that requires knowledge and a willingness to improve daily.
To be a successful trader, you need to read lots of educational materials and, of course, practice. To practice, you better use a demo account that can prevent you from money loss and help gain more knowledge and skills.
A Libertex demo account is the most comfortable way to begin your trading path. As soon as you feel confident enough, you can move to the real account. Libertex provides a wide range of securities, trading indicators, small spreads, and safe leverage.
Нужно добавить ссылку на видео “Первые шаги” - “Когда переходить на реал” - видео есть только на испанском
Why to trade with Libertex?
- access to a demo account free of charge
- technical assistance to the operator 5 days a week, 24 hours a day
- leverage up to 1:500 for professional clients
- operate on a platform for any device : Libertex and Metatrader 4 and 5
- no commissions for extractions in Latin America
Let's answer the most common questions about traders and trading.
What It Means to Be a Trader?
Being a trader, you speculate on the price changes. The main idea is to predict the market direction and make a profit out of this.
What Is the Role of a Trader?
There is no specific role as a trader. A trader is a part of the financial world that participates in money movements.
Is Becoming a Trader Worth It?
It depends on your aims. If you are looking for fast rewards and can trade whenever you want, you should become a trader.
What Skills Does a Trader Need?
To become a trader, you should know the basics of financial markets, understand the trading process, and be ready for losses.
How Many Hours Do Traders Work?
It depends on the aims of the trader. If you consider it a full-time job, you may spend the whole day trading and seeking new profitable strategies. However, if it's just a hobby, you can enter and exit the market whenever you want.
Is Being a Trader Hard?
If you want to be a successful trader, you should contribute lots of your time to the learning process. However, it is worth it as the potential profits are very attractive.