What are Forex Traders?
What does a forex trader do? By definition, a trader buys one type of currency and sells another one at the current rate of exchange. So, forex trading is much like exchanging currency when traveling overseas. Supply and demand of a given currency determines its rate (but only to a certain extent, and at a certain level), so there’s never a guarantee it will stay the same.
The bulk of trading takes place between institutional traders (people who work for banks, multinational corporations and fund managers). The kicker is that these traders may not want to take possession of the currencies. Instead, they speculate on potential dips and spikes in exchange rates. Currency exchange rates are used by forex traders to profit from trading foreign currencies.
If you’re a forex trader, you might concentrate on trading US dollars and British pounds (cable), and seek to specialize. This is just one of many forex trading strategies traders use. But we shall touch upon that on a separate discussion.
How to Become a Forex Trader
To become a forex trader, you need not first obtain a college degree; however, degrees under some academic specializations (such as economics) may provide some starting advantages. If indeed you are thinking about starting with forex trading, the following steps could be of some benefit:
- Conduct a self-assessment (see SAPA for more information)
- Set for yourself attainable short-term goals
- Observe trading charts for some period prior to starting
- Practice trading
- Trade specific currency pairs (if specialization is your preference)
- Adopt an active approach to your development as a trader
- Seek advice or mentorship from seasoned professionals
- Use high-quality trading resources
- Don’t give up. Keep pushing forward.
Most major US stockbrokers provide forex trading for beginners. If you already have a brokerage account, you can probably start trading forex. In most cases, all you need to do is download an online forex trading app and fill out a brief form.
When you open a new forex account, you will first make a small deposit. Some professionals recommend starting with as little as $300. However, we’ve explored the notion of ‘ideal starting capital’ separately, over here.
After you’ve set up your account, you can start trading by picking the currencies you would like to trade. Currencies on the forex market are always sold in pairs. When the value of one of the currency pairs rises, the value of the other drops.
Most new traders should only trade the most commonly traded currencies, such as the British pound, euro or US dollar, because they have the smallest spreads. The forex spread is the fee the trading specialist charges for managing the trade.
Why Forex Trading Is Important for Ordinary People
What happens in the forex market affects all of us therefore a newbie probably shouldn’t dabble in the market so much. What happens in real time affects how much we pay for exports and how much it costs to travel abroad.
It will be cheaper to buy imported goods and travel internationally when the value of the American dollar goes up. Why? Because you can then buy more euros with your US dollars. However, those dollars won’t be worth as much as the dollar depreciates and you will pay a higher price to travel out of the country.
Do Forex Traders Make Good Money?
Anyone with investing and analytical skills can easily find an at home full-time or part-time job with a flexible schedule in forex. You don’t need a college degree to trade but some form of business or finance-related education may be advantageous. In fact, some employers will pay for their education. The average forex trader salary for a foreign exchange trader is in the neighbourhood of $90,000 per year, according to Indeed Salaries. And for traders who engage with the forex market outside of employment, the earning potential is greater.