How Can I Become a Successful Trader? [Top 5 Tips for Beginners in Forex]
- What is Forex trading? (Characteristics of Forex Market)
- Beginner Forex trader: Where to start?
- How to Open a Forex Trading Account?
- 5 Tips for Beginners in Forex Market
What is Forex Trading?
Characteristics of Forex Market
In simple words Forex is trading of one currency for another, i.e., is a platform for exchanging currencies at agreed quotations in the over-the-counter market.
Essentially, in Forex, mainly for speculation, one currency is bought and another is sold at the same time. Currency rates fluctuate against each other due to several factors, including political and economic. In doing so, the overall goal of traders is to profit from changes in the value of one currency against another.
Unlike other markets, forex does not have central exchange or several major exchanges and is traded through a global network of organisations, large banks and individuals. To enable individuals to trade forex, there are special dealing centres and forex brokers, intermediaries who carry out market transactions on behalf of traders.
One of the main features of forex is that the currency market operates 24 hours a day from Monday morning to Friday evening. Trading opens on Monday in Wellington, New Zealand, flows to the Asian financial centres of Tokyo and Singapore, then starts in London and ends on Friday night in New York.
During trading, a trader buys a currency pair if he believes the base currency should rise against the counter currency. Conversely, the trader sells a currency pair if he believes the base currency should weaken against the counter currency. The difference in the bid and ask prices is called the spread.
Many factors affect currency in the forex market, from international trade or investment flows to political or economic news. This makes forex trading fascinating. Quotes change quickly in response to news and short-term events and this means high liquidity. This also creates trading opportunities for market participants.
The key factors affecting changes in exchange rates at Forex are political and economic situation, currency interventions, the monetary policy of central banks, etc.
It is worth noting that along with the importance of the main characteristics of the forex market and principles of trading on this market, you must have special knowledge, as well as experience. However, it is very difficult, especially for beginners, to immediately understand all the nuances of Forex trading.
5 Main Rules of Forex Market
The Forex market has a certain structure and rules for trading. They may seem complicated to a beginner, but they are much simpler, you just have to understand what´s what. Trading on the Forex market is subject to the following rules:
- A dealing centre provides traders with the access to perform various deals.
- The same dealing centre opens an account in the name of a client for the deposit of funds.
- Using a special trading platform, the trader will receive information on the history of changes and overall price dynamics.
- According to the received information, the client will make requests for committing new transactions for buying or selling currencies.
- The Forex company carries out transactions and fixes them on the trading account of the client.
Nowadays, Forex is the most efficient way to earn extra income, so it makes sense to learn the basics of trading. As a beginner trader, you should not be afraid of “scary” charts, overloaded with various curves, numbers and values.
You don't have to be a financial analyst to understand them. Thought, it is possible that experienced analysts can easily and quickly understand even the most complicated processes on financial markets. But also a beginning trader, who is gradually acquiring new knowledge and, importantly, who has the opportunity to test this knowledge in practice, has the same chance to succeed in his studies. A strong desire to earn, a serious attitude to learning and strong motivation will help to unlock the secrets of the currency market.
Most of the successful traders started in the Forex market knowing nothing about it but gradually honed their skills and gained useful experience. Today they have chosen to trade as their main occupation.
When you have made up your mind firmly and decided to start trading forex, your first question must have been - “Where to start?”
Beginner Forex trader: Where to start?
A smart way to begin your trading career is to learn currency trading basics.
You can begin by watching the free Forex video tutorials to understand the terms, concepts, market participants and key mechanisms. You will learn the basics and decide if you are interested in the subject and would like to go deeper. Then you can try your hand at a safe demo account and gradually move on to real money trading.
As a beginner forex trader you must understand the specifics of trading that affect the income-generating process:
1. Market instruments
This section contains useful information about market indicators - signals, which help to determine the best moment to enter the market. At the beginning of work at Forex market, you can get confused with a great number of trading indicators they have a similar structure with a different approach to the determination of signals.
2. Trading strategies
Methods that can be used by Forex beginners to make their first profit on Forex in the fastest and most effective way. A strategy is important, especially for a beginner trader in the Forex market who is not yet experienced and does not have enough practical knowledge of trading. A proper strategy should be first of all comfortable for a beginner on the Forex market.
For this purpose, you should consider the following factors when choosing your first strategy:
- Time. A beginner on the Forex market needs to know exactly how many hours per day you can devote to trading.
- Profit. How much money does the future trader want to receive?
- The number of acceptable risks of trading
The forex market will be able to organize its trading in the way it wants. Thus, the medium-term or long-term strategies are suitable for traders who do not have much time. But for those who are ready to devote maximum time to trading, the intraday trading strategies will be suitable.
3. Trading tactics
Understanding your trading tactic by a Forex beginner is as important as choosing the right strategy. A beginner needs to learn how to analyze the market and understand what direction to open trades in and what part of the capital is better to invest in a trade.
Tactics are important because the importance and effectiveness of trade depend on both entering and exiting the market. And while the strategy implies the basic, global rules of trading, the tactics influence their direct implementation.
4. Analysis methods
A beginner needs to know how to analyze the market. The financial market should be constantly analyzed because Forex is a very unpredictable and volatile financial system. The leading Forex analysts are constantly developing new methods to analyze the market. They aim at predicting market movements: mostly regarding future price movement. A beginner should learn to use several methods at the same time, for by analyzing the market in this way a trader gets a double confirmation of the trend and can make decisions concerning his next moves during a trade.
To start trading you need an account, so the next question that appears is “How to open a forex trading account?”.
How to Open a Forex Trading Account?
First of all, there is one logical feature that newcomers are not yet familiar with. Those who trade forex do not open an account in the forex market itself, but with forex brokers, who are the operators of that market.
Second of all, you need to decide on the type of trading account.
To gain experience in trading without spending money, open a demo account. Trading on such accounts is done with virtual funds. If you chose MT4 and MT5 platforms, you will have 2 types of accounts available to you: Demo ECN and Demo Pro. If you want to open a real account, but are not ready to trade with large amounts of money, you can begin with a ProCent account. This is also available on the MT4 and MT5 platforms.
When you open your first trading account it is best to open it in one of the world´s most popular currencies. Once you have gained enough experience, you will be able to choose a different base currency for your new trading account, if necessary.
In very brief, to open an account, you need to:
- Go to the rating of Forex brokers
- Choose yourself a broker from the top brokers
- Press “open an account” with a selected broker
When registering a trading account, you will need to give information about yourself and also your financial information. Some dealing centres also ask for your source of income, tax jurisdiction and several other details.
And absolutely all dealing centres ask for verification. You need to send a photo ID and also proof of residency. And you should send a photo of your credit card.
That is all, after that the registration procedure is officially completed. As you can see, there is nothing complicated about this process.
5 Tips for Beginners in Forex Market
1. Stop-loss is a necessary protection.
Trading without a stop-loss is the main reason traders lose their accounts.
2. 2:1 is the minimum ratio of reward to risk
In every trade try to get the maximum reward. Small take profits have never worked and will never work. Although they can work, in very short time frames.
Eventually, that series of big losses will come, which will eat up all those small profits earned with a lot of hard work and risk.
3. Give up trying to find the best broker
Stay away from asking “Which broker is the best”. Forex brokerage is a very tough business. All brokers fight fiercely for new clients and to retain old ones. Broker ratings are never accurate or hone. Don´t pay any attention to them. And it´s certainly not the broker’s fault that retail traders are losing money.
Find a decent broker with a good name and trade with them for a while. Time will pass, you will grow up as a trader, gain more skills and competencies. And then you will find a broker that meets your new, more professional needs: automation, speed of execution, etc. One more thing, never compare brokers and the cost of their services. Good services are expensive.
4. Automate your trading
It takes a lot of time and intellectual effort, but it’s worth it. If you quit trying to develop as a manual trader right now but focus on automation, those few months or years will be the best investment you can make.
Delegating your trading to a computer will free up your human resources and your development will increase. One trading robot performs many times better than dozens of manual traders. Automated trading frees up your time and allows you to invest it in new trading ideas and automation tools.
5. We advise you not to expect profits in the first year of trading, there probably won´t be any.
Don´t be discouraged. Not everyone makes money in Forex, especially in the first years of learning. Don´t get your hopes up for a quick and big income from Forex trading.