Suppose you have decided to or are still considering whether to become a professional forex trader and capitalize on the world’s biggest financial market.
In that case, you are probably thinking about how you can make money in forex trading, how much money you need to get started or how much time to get ready to start forex trading.
In this article, we address such questions and more by providing you with a step-by-step guide on how to start trading forex and tips on making money in forex trading, even as a beginner.
The forex market is the largest financial market in the world with over $6 trillion traded daily – even much larger than the stock market. In forex, currencies are traded in pairs; traders speculate which currency will rise or fall against the other.
For instance, at the time of writing this article, the exchange rate between the EUR and USD is 1.0252, and it is normally displayed as EUR/USD.
That means that you will spend 1.0252 USD for one Euro. These rates are always changing, in most cases the last two digits, up and down. This is known as fluctuation in price liquidity.
You look for opportunities to buy one currency at a low and sell it at a higher rate.
That is basically how forex trading works.
So, making money in forex trading can be… let’s say… quite complicated. Forex trading requires a mix of the following virtues:
- Patience: You must be patient to learn and earn
- Forex knowledge: You need to know the ins and outs of the forex market/trading
- Risk management: You will not make money if you do not know how to minimize risk
- The ability to strategize. You must have a plan if you want to be successful in forex trading
If you do not have any of these and do not have the time to learn about them, forex trading is not for you.
How Much Money Do I Need to Get Started?
Forex trading is an excellent choice for many upcoming traders because it requires less capital than other forms of trading, such as stocks or commodities.
The way currencies are broken down helps make this easier for traders to start with small capital. Most, except for USD/JPY (the United States Dollar/Japanese Yen), are broken down to the fourth decimal, which is called a pip.
Most financial instruments cannot be broken down into such small figures.
Even if you prefer to trade stocks, commodities, or bonds, forex is an excellent place to get started. It will help you understand the fundamentals of trading and potentially gain some capital.
Technically, you will need enough money to open a trading account, which can vary depending on the broker you are working with. Some brokers do not require you to deposit a certain amount to start, while others will require you to deposit as much as $500 or more. You should have in mind that huge profits often require significant investments.
With the money you will use to open your trading account, it is best that you risk only 1% on any trade. In forex, you can lose money easily.
Don’t forget that as a beginner, you should be more concerned about learning how to place trades than making profits. If you lose money, investigate how it happened and ensure you do not repeat the same mistake twice.
You also need to consider the fees as well. You will have to pay charges; though most forex brokers will not charge a commission on your trades, some might. Also, there are other fees to have in mind as well, such as the swap fee; this is what your broker charges you for holding a position overnight.
Also, you have to think about paying tax on your forex earnings. If you are in the UK, you will not have to bother about paying taxes on your earnings from trading forex. However, if you are based in the United States, you need to research the tax laws on income earned from trading forex.
How Much Time Do I Need to Be Ready?
Before we talk about how much time it will take you to be ready to start trading forex and making money, we need to talk about you having the right mindset.
You must take forex trading as a ‘business,’ not a quick way to make money. This is a mistake most beginners make. There is no business where you will start making profits immediately, especially if you are still learning how to go about it.
The most successful businesses need time and business plans. Persistence is vital in any business. Some forex traders only really start making money after two to three years.
The question is: Do you have the time required to learn? You must be honest with yourself about this. You need to devout ample time to learn about forex trading.
Finally, after learning to trade, you can start practicing.
Have it at the back of your mind that not only that you might lose money sometimes, but you might also not be able to find an appropriate trade opportunity.
How Much Money Can I Make Trading?
You can make a lot of money in forex trading, that’s for sure! Look, we are not saying that you will become a millionaire overnight, but if you commit to practicing, learning, and being patient, you make a lot of money trading forex.
As with a salaried job or business venture, you need to look at your profits over a long period, such as a month or a year.
As was discussed earlier, when you start trading forex, you should be risking only about 1% of your capital per trade.
You should consider how many pips you will gain on each trade.
To be honest, you will need to figure out this for yourself. However, most newbies will look to profit between 20 to 25 pips for every trade as practice.
However, as you become more experienced in trading, such profits will be too little for you. In fact, it is advised that you do not waste your time agonizing over such gains and instead position yourself for bigger, less time-consuming profits.
For lots of traders, making between 50% and 55% is considered successful and profitable. Over time that small percentage builds up. Win more than you lose. But do not chase those losses!
Where Can I Make Money Trading Forex?
Retail forex traders usually make trades through a broker as a CFD (Contract for Difference). Now, your mental image of a broker should not be of someone in a black suit sitting at an office desk and waiting for your call. We are in the 21st century, after all.
Practically all brokers operate online. They utilize all forms of modern technologies to push your orders to exchanges where they will be fulfilled.
You place to buy and sell orders through a platform that can either be web-based, which is very popular these days, or an application on your smartphone or desktop computer, such as MT4, MT5, or cTrader. And you can even make trades through a smartwatch with some brokers.
There are lots of different exchanges covering various time zones globally. These exchanges allow you to trade forex 24 hours a day, from Sunday 6 pm till Friday 5 pm EST (the United States Eastern Standard time).
Of course, all brokers do not operate in the same way. In fact, forex brokers operate in very different ways.
There are two primary types of brokers:
- The dealing desk, which is often referred to as a market maker
- The non-dealing desk, which can be STP or ECN
Tough, in most cases, forex brokers offer a mixture of the above in the form of different account types.
While it may sound appealing to use brokers with more direct access to the market, Your choice of a broker should be down to your preferences.
Having Strategies Is Vital
Strategies are how you make your money. Without a strategy, you cannot really say you are even trading forex. You may as well be playing Russian roulette.
You cannot rely on just one strategy. In fact, you use strategies in certain circumstances, depending on the market’s direction. For instance, trending downwards, trending upwards, or simply ranging.
You must assess the market before you set up a strategy. Then, when you are sure that a change has emerged in the market, you put your plan into action.
Also, strategies are much more effective at making big profits. You cannot expect to make large profits at all without a strategy. Most popular trading strategies seek to profit from the market’s changes and abnormalities.
Another vital part of strategizing is that you can use them to mitigate risks, which takes us to our next point.
Consider the Risks Involved
You should never forget this. It is very natural to think about the rewards of successful trading, but you also need to plan for your losses as well. You need to consider what you might lose should your plans fall short or even fail completely.
You cannot afford not to be prepared in forex trading. Nothing should catch you by surprise. This is where we get to risk management.
To perform risk management better, you need to understand your risk-reward ratio. For instance, how much can you afford to risk to make a profit?
Ideally, your losses should be low, and your profits should be larger or larger than your risk. It is possible to lose all your trading capital if you do not understand the risks involved.
A great way to prevent big losses is by using stop-losses and take-profit orders. These are commands you use when placing trades on a trading platform that automatically exit a position when the price gets to a certain point.
Consider these orders as an insurance policy.
Invest in Your Forex Education
Forex requires lots of training with a demo account. Anyone with identification can open an account with a broker and have it funded in 24 hours or less.
Yet, as a newbie, getting the green light to begin trading with real money in 24 hours or less is a recipe for disaster.
The bottom line is that you must treat the forex market, and trading as a career. That means you must spend the time and money educating yourself as you would with just about any career path.
They are key points you should remember from this article:
You can make a profit in forex trading if your profits are higher than your losses. Most successful traders prefer using 50-55% because it’s sustainable.
You make money in trading forex by strategizing. Do not start trading without a plan and an idea of how to make money in different market scenarios.
Remember that risk management can stop you from losing everything. With every trade, you should know how much you are willing to lose.