How Can I Learn To Trade Forex?
Forex Trading can be a highly exciting way to make a living, with those who do it well making a very rewarding career out of it. But, like any other high-skill profession, not everyone will be good at it and even if you have the necessary skills and instincts you will need to build up your experience and learn a great deal about what is involved.
As such, it is like many things that people can excel at but require hard work, dedication and talent in combination. However, this does not mean it will take anything like as long as some trades, such as the seven years involved in qualifying as a doctor or an architect.
Indeed, there is no formal qualification process as such. But you do need a lot of knowledge about the foreign exchange (Forex) market to start with, including different trades and, of course, prop funding.
The Basics Of Forex
You will, of course, have already understood that the Forex is the international exchange on which different currencies are traded at prices relative to their value at any given moment. For many who use it, the reason for this is to facilitate trade or tourism, such as when you change your pounds into a foreign currency before going on holiday.
However, for Forex traders, buying and selling currencies is not a means to one of these ends, but a method of making money, taking advantage of changing situations to switch between different currencies as their relative values change and end up with more money as a result.
This involves speculative buying and selling, in anticipation that various factors will cause the relative value of two currencies to change, for example, because a central bank is about to make an interest rate decision and this will impact the value of a currency if what you expect to happen does occur.
Other releases of economic data, major economic turbulence, elections, natural disasters and wars can all have an impact on currency values and a trader will seek to maximise changes in value that arise from this, often by ‘betting’ on a particular development to take place.
Why Headline-Making Forex Trades Are Not The Norm
There have been some spectacular instances of this down the years, a prime case coming in 1992 when trader George Soros bet against the UK pound, believing the UK government would not be able to keep it in the Exchange Rate Mechanism, which pegged the value of currencies against the German Mark.
His shorting of the pound helped the exit of sterling from the system and earned him billions, while wrecking the government’s flagship economic policy. However, it should be noted that instances like this are exceptional. Most gains are quite marginal.
Indeed, there are different kinds of trading and it is important to know about them. The smallest gains are made through what is known as scalping. This involves lots of quick sales aimed at making the most of small, brief fluctuations in values.
You can also make transactions based on current values (the spot market), or based on a perceived future price (the futures, forward and options markets are variants of this). It is vital to learn about each of these, not least as you may not always trade in the same way.
Getting Started
Part of learning to trade Forex is knowing how to get set up, which involves finding the right broker and setting up a trading account. You also need prop funding, unless you have a load of money to start with yourself.
After this, you need to develop your skills in analysing markets, making trading pair selections, and monitoring and learning from them as you go along.
Using a dummy account is a great way to learn to trade, as these will not be real trades or use real money, but you can simulate the actions of a trader and develop your skills. This can help you show that you have developed the necessary aptitude to make a prop firm confident about funding you for real trades.
The key is to be ready to learn, by finding out not only the technical details of different means of trading, but also growing your understanding of how and when to use them.
Key skills include managing risk, so that you don’t end up blowing all the money you might have gained. In the 1992 George Soros example above, he could have made big losses had things turned out differently and on other occasions he did, but when starting out you will not have such financial leeway.
This means knowing when to hedge and when to use measures like a stop-loss (which halts a trade when losses on it reach a certain point) will be vital to ensure you get your career off to a sound start.