Meta: Discover whether you have what it takes to earn money as a trader by reading our four-step guide that outlines how you can start trading forex today.

Four Steps to Becoming a Forex Trader

Working a day job does come with its perks, as you have a stable schedule and only need to follow instructions to continue earning a reasonable salary. 

Some people may enjoy such a life, especially if they can climb the ladder at a company or switch jobs every few years to keep raising their pay. 

You, however, may have other ideas about how you want to make money. Perhaps you have heard about people who trade forex for a few hours a day and make great money. Now you may have similar ambitions.

While becoming a successful forex trader does require talent and dedication, the path to trading currencies is a lot simpler than you may imagine. 

Below are four steps that can get you started on becoming a forex trader.

1. Learn the Basics

Before you take any advanced steps in the forex market, you must understand the basics of what happens in this form of investing. The forex market allows people to trade currency pairs around the world, which can fluctuate in value throughout the day.

An example would be trading the USD/EUR currency pair, which indicates that you are looking to sell your US Dollars to buy Euros. The current price of the pair would determine how many Euros you can buy for a single dollar.

The hope with any forex trade is that you will end up in a favorable situation in the coming hours or days after executing the trade. For instance, if you buy 12 Euros when the USD/EUR value is 1.2, you would be spending 10 dollars to do so. If the value changes to 1.0, you could then sell those 12 euros to gain 12 dollars, profiting from the trade.

2. Understand Patterns

Deciphering and understanding patterns in the forex market is critical to short or long-term success. The best traders begin to understand how specific currency pairs fluctuate over a given day, week, or month. They can look at historical data, world events, economic indicators, and other factors before making a judgment on the price direction and then trading accordingly.

As you begin to compile a list of forex patterns, both short and long-term, you can start to visualize your trading strategy. The beauty of patterns is that they allow you to automate your trading process. Rather than having to think about what you will do on a given day, you only need to ascertain whether the conditions of your patterns are being met, and you will then know what trades to make.

3. Develop a System

After you have a list of patterns written down, you can move on to creating your overall forex trading strategy. There are many options, such as becoming a day trader, investing in forex for the long-term, or only trading based on economic and political events.

The system you design should play to your strengths. For instance, if you are still planning to work a regular job, you should not have ambitions of being a day trader. Such a strategy requires a lot of time and work, which you may struggle to input if you are also spending eight hours a day at another job.

4. Trade Using a Demo Account

One of the benefits of creating a forex account on an online platform is that you can gain access to a demo account. Such an account allows you to trade forex without having to use any real money.

If you have come up with a few strategies or merely want to see how a forex trade works, you can use the demo account as much as you desire. Many people who are new to forex and do not have a finance background spend several weeks making demo trades.

Such a step ensures that you are not taking any unnecessary risks with your money. If you begin to trade using real money without previous experience, you could lose your savings to unforeseen mistakes. The demo account will let you fine-tune your strategy before you trade with money.

Dive Into the Deep End

Now that you have come up with a plan, studied the forex market, recognized patterns, and even attempted trades using a demo account, you are ready to take the next step. 

Becoming a real forex trader is a significant achievement for anyone, especially if you had minimal finance experience prior to starting this journey.

Start slowly with your trades, invest modest sums in relatively safe currency pairs, and then work your way toward a larger volume of trading and more risk-taking.