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Forex trading presents a highly lucrative opportunity, offering a dynamic marketplace where traders can capitalize on global currency fluctuations. With the right strategies and knowledge, individuals can tap into the forex market’s vast potential for substantial profits, making it an attractive venture for novice and seasoned investors. The 24-hour availability of the forex market allows for flexibility in trading times, catering to various lifestyles and time zones. Additionally, the low entry barrier and the ability to leverage small investments into significant positions make forex trading an enticing option for those looking to diversify their financial portfolio.
Forex trading isn’t complicated like day trading or traditional trading. It doesn’t require a massive investment in the form of equity. One can quickly learn the basics if they are familiar with computer operations. While the prospect of losing money persists in every trading, it is relatively lower in forex trading. However, one would want to turn their efforts and time into profits. If you are wondering how to get into forex trading, here is your guide.
How To Get Started With Forex?
To start with forex trading through self-education, begin by studying college-level books on technical and fundamental analysis, such as those by John Murphy, to gain a comprehensive understanding of market dynamics and trading theories. Concurrently, practice trading strategies in a demo account to apply your knowledge in a risk-free environment, allowing you to refine your techniques and build confidence before engaging in actual trading.
We recently wrote the article How to Become a Forex Trader and pointed to a crucial step – self-education and reading college books related to technical and fundamental analysis.
I ventured into the world of forex trading through a unique path, starting with programming in MQL4, which gave me a technical foundation in the market’s mechanics. Initially, my focus was more on programming, utilizing my skills to understand and manipulate trading algorithms. Only after this initial phase did I begin to delve deeper into various trading strategies, enhancing my practical trading knowledge. This unconventional approach allowed me to blend technical expertise with strategic insights, offering a comprehensive forex market view. As I progressed, I became more adept at identifying market trends and making informed decisions, thanks to my combined knowledge of programming and trading strategies.
The first question that crosses the mind of every inexperienced trader is how to get started with forex. Here is the break-up of everything that you need to begin your forex trading journey, how to trade forex CFDs:
- Get an Internet-Enabled Device
One of the reasons why forex trading gained popularity in the last decade is its easy accessibility. If you have a device connected to the internet, you can arcane art via an online broker. You can select any device. You can do it with your phone, tablet, laptop, or desktop. While most trading applications are readily available on Android and Windows, some can also be found on Mac and iOS.
- Find a Reliable Online Forex Broker
You will find plenty of good forex brokers. Most online brokers have the same commission and margin system; it is always advisable to compare before you finalize.
If a trader wants to learn how to find a broker, he must analyze 17 practical steps.
- Create an Account
The next thing that you need to do is to open an account. This isn’t a complicated task; you should be able to do it independently. Once you have decided on your broker, you can visit the forex.com website and open an account. You will be asked to confirm that you have a legal identity and will not be getting involved in money laundering.
- Deposit Funds
Like other trading platforms, you must deposit some into your account for safety reasons. Your broker will use these funds as a margin and for creating leverage. The ratio of leverage will depend on your and your broker’s location. Your broker will most likely offer several funding methods to you. You can select the one that is the most convenient for you. If, in the future, you need to withdraw your money, you will have to do so via the same method. Therefore, select the method that you are sure about.
- Select a Forex Trading Platform
There is a plethora of forex trading platforms that can be downloaded with a click. These platforms make forex trading convenient. Some popular platforms are Meta Trader 4 and a few platforms from MetaQuotes. You can download these for free at a developer’s website and install them on your device. Your broker might also suggest a particular platform to you. Whatever you choose, rest assured that selecting and downloading a forex trading platform is not rocket science. You can easily do it.
- Make Your First Trade
Now that you have set up everything, the next question is, how do you get started in the forex market? It would help if you gave yourself time to learn how to use the trading application. Could you familiarize yourself with it? Learn how to enter and exit the platform without leaving loose ends. Make a demo account if you are not sure to avoid making costly mistakes. When you feel confident, you can start your first trade in the forex market.
Deciding between Long and Short Positions
By entering into the forex trading market, you enter a position like a non-binding contract. The position can be long-term or short-term. Based on the number of transactions, you can add to the position. You can also reduce the position by closing your existing trades.
Since your position is based on the exchange rate of the currencies, you need to understand them. Every currency pair is made with a base currency and a counter currency. Traditionally, these pairs are noted by their three-letter ISO 4217 codes with a slash in between. For example, if we consider Britain’s pound (GBP) as the base currency against the U.S. dollar (USD), it will be written as GBP/USD. Now that you have understood how base currency and counter currency work, you can decide between the following options:
Start Forex Trading by working for Prop Companies in Funded Programs.
Demo trading becomes particularly lucrative when engaging with proprietary (prop) trading firms that offer scaling programs. These programs often start traders with a demo account, allowing them to manage increasingly more significant amounts of the firm’s capital based on performance. Here’s how it can be lucrative:
- Scaling Opportunities: Traders can prove their skills starting with a demo account, typically with a notional balance like $25,000. Based on their success, prop firms may allow them to manage more considerable natural capital, scaling to significant amounts like $4 million.
- Profit Sharing: As traders successfully scale their accounts and manage more significant sums of the prop firm’s real money, they often enter into a profit-sharing arrangement. This means a portion of the profits generated from trading with the firm’s capital is given to the trader, which can be pretty lucrative, especially as the managed capital increases.
- Risk-Free Skill Development: Initially, trading in a risk-free environment allows traders to hone their strategies without financial loss. This skill refinement is essential for managing more extensive portfolios effectively, leading to higher profitability.
- Performance Evaluation: Prop firms use performance in demo trading to assess a trader’s potential. Demonstrating consistent profitability and effective risk management in a demo environment can lead to opportunities to trade with significant real funds.
- Professional Growth: Working from a $25,000 demo account to managing 4 million dollars. Traders improve their trading skills and learn to handle the pressures and responsibilities of managing large amounts of capital.
- Access to Advanced Tools and Support: As traders progress and manage more significant funds, they often gain access to more advanced trading tools and resources from the prop firm, further enhancing their ability to generate profits.
The Risks and the Rewards
It is a fact that anyone who enters any trading market is looking to make a profit. It is the same with trading forex. You make profits once you take a position. When your position loses value, you make a loss. However, these gains and losses are only realized when you close the position. As long as the position remains open, everything is unrealized.
All the inevitable risks and rewards of forex trading by taking a position are based on leverage. Here, leverage is noted in the base currency that you have chosen. It is expressed as a ratio of the position size that you can control against 1 unit on your deposit. For example, in a 500:1 leverage ratio in the currency pair USD/JPY, you can control a $500 position using just $1 placed on the deposit margin.
Before entering the forex trading market, you must consider your minimum risk/reward ratio. For example, if you are willing to risk ten pips on a trade expecting to gain 20 pips, your risk/reward ratio would be 10/20 or 1:2. Risking anything for less than this ratio is not preferable.
Conclusion
One doesn’t need to be an expert in stock and trading to become a part of the forex market. But one thing that differentiates a successful trader from a beginner is the process of learning. While anyone can set up a forex trading account, not everyone can develop the right strategy, discipline, and mindset to be a part of this world for a long time. It would help if you were quick and accurate. There is a lot of unavoidable clerical work.
All these qualities are requisites for becoming a successful trader. It would help if you were transparent to yourself about your mistakes. Start slow and work upwards. This market is for resilient traders. Any rash decision can put you in deep waters. Analyze your mistakes, if and when you make them. Your learning curve will decide whether or not you are suitable for forex trading.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
