The forex market is the largest and most liquid in the world, with an average of more than $5 trillion traded each day. It offers numerous opportunities for those trading on the market to make big profits, with hundreds of currencies available to be exchanged. Therefore it’s no surprise that many people consider a career or part-time hobby in forex trading.
To become a successful forex trader there are a large number of requirements. Almost anyone can hire a broker to make their decisions for them, but in order to become a trader in your own right you will need a good knowledge of the markets, particular skills and character traits. Here are ten of the most important things you need to check if you’re wondering whether you’ve got what it takes to become a successful forex trader.
Nobody becomes a profitable forex trader overnight. There are so many variables involved in what makes currencies increase or decrease in value that there is a lot to learn and it can take a decent amount of time. If you’re serious about forex trading be prepared to spend plenty of evenings after work and some of your free time learning the ropes.
When you actually begin trading currencies a good amount of patience is still required. Making long-term rather than short-term trades are far more reliable and profitable, which is why they are advisable for new traders. However, this involves keeping a position open for months and sometimes years, which involves plenty of patience.
- A Detailed Trading Plan
Having a trading plan is vital for every forex trader, and the most successful will not only possess the best trading plans but follow them religiously. It’s no use having a solid plan but deviating from it when you feel like it.
A trading plan will be written down and lay out clear entry and exit points. In order to ensure that your trading plan will be successful it is best to test it out beforehand, and tweak it where necessary. It can be tempting to make trades outside of the plan, and occasionally they may be successful, but it is generally best avoided as they can fail or mess up future plans.
- Knowing When to Take a Loss
Not only do the best forex traders know when to cash out and take a win but they also know when to stop and take a loss. Knowing when to take a loss should work into your trading plan as you will have a good exit strategy that defines how to get out of losing positions.
If you’re someone who just can’t accept failure then forex trading may not be for you. No traders win all their trades, few win over half, so losing on a trade is not failure. Taking a loss before it spirals out of control can mean the difference between losing hundreds to thousands of dollars, and even in extreme cases your business. So knowing when to stop is vital.
- The Right Tools
The main tool you need is a quality trading platform, such as the bespoke ones offered by ETX Capital. Choose a platform that has a wide variety of resources, such as chart and graph applications, the latest prices for commodities, forex pairs, equities and more and an easy to use interface.
Certain platforms will suit your needs better. Many accounts can be used on various devices, including smartphones and tablets, which makes them ideal for those who trade away from home or their desk. This ensures you stay up to date with all changes in the market and can take advantage of them as soon as they happen.
- Being a Risk Taker
Forex trading is not for everyone. Although there are different types of forex traders, one trait you will need to be a success is to be a risk taker. No matter how much research and calculating you do, making a forex trade is still essentially a gamble. As it will be your own finances on the line (plus extra when taking advantage of leverage) it can be nerve-wracking to wait, hoping it will be a successful trade but risk is needed to make that choice in the first place.
- Following the News
Global and financial news events can have a big impact on currency prices, so it is important to keep up to date with news events. Political situations, outbreak of war and other financial events are used by the smartest traders to predict when a currency is going to strengthen or weaken. Therefore a keen political and financial interest is required to be a success.
- Success with Practice Trades
Before stepping into the forex arena for real you must test out your trading plan and strategy with a demo account. This will give a good idea of the realistic chance you have of making it as a trader. Only when you have experienced success making practice trades should you transfer across into the real world of forex trading.
- An Understanding of the Market
When devising a trading strategy it is more likely to be successful if you have a good idea of how the market works. There are many differences between the forex and stock markets, so it is advisable to be aware of what affects prices, optimum times to trade and more. There is plenty of reading and videos online as well as courses you can take to improve such knowledge.
- Confidence and Commitment
There have been studies into the psychology behind forex trading and in the same way that being a risk taker leads to success, so does confidence. Important decisions have to be made and you need to be confident in them to stand a chance. Commitment is also required as it can take a while to start making significant profits, especially when making long-term trades with major currency pairs whose prices fluctuate little.
- Willingness to Learn
Even the most experienced traders are still learning. Losses are a certainty in forex trading and it is important to learn from them. Keep a record of every trade you make, whether it wins or loses. This can then be referred to in order to evaluate a trading plan or when seeking out professional advice to gain feedback. Traders need to be open minded and willing to learn for this to have a positive impact.
If you think you possess or can develop all these requirements then a path leading to success in forex trading could be opening up.
****Image thanks to William Warby***