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A forex trader is a person with who earns money by trading in the foreign exchange market. A trader is very often called a trader, because in order to open an account with a broker, they have to invest a certain amount of money, which may or may not pay them back in excess in the future.
Forex trader – types
Each trader has individual tactics of action. Some make decisions impulsively, while others precede each step with a thorough analysis of the market. Regardless of the course of action, the trader should think carefully about the covered course of action, because there is no turning back when it comes to investing. Buying a financial instrument that is unsuitable for the moment or selling it prematurely can result in a large loss, and after all, the trader’s goal is to generate profit.
A forex trader can trade short, medium or long-term. It is believed that the highest profits are achievable with investments with a long time horizon. Depending on the tactics used, there are three types of traders – day traders, swing traders and position traders.
Foreign exchange market traders who trade in a short-term manner are day traders. They open and close positions on the same day, as indicated by the word “day.” In this case, the investment time horizon is a maximum of 24 hours. Most short-term traders open positions for several hours, although in extreme cases it happens that they close positions within seconds.
It should be noted that a short time horizon is associated with rapid decision-making, which in turn is associated with high stress. Short-term investments are usually not suitable for people who are taking their first steps in the financial market, which is why day traders usually become experienced investors.
Investors who choose to invest and have a longer time horizon are called swing traders. The positions they open can be closed as early as the next day, or after three weeks at the latest. However, it should be mentioned that in swing trading the time horizon is not precisely defined, so it happens that swing forex traders extend it. Medium-term investments, on the contrary to short-term investments, are a chance to carry out thorough analysis and make well-considered decisions, and are therefore suitable for beginners.
In this case, we are talking about a person who decides to make long-term investments. A position opened for a longer period of time than 3 weeks is considered to be a long term investment in the forex market. Position forex trader works, based on market analysis, although he does not spend as much time investing as a swing trader or day trader. Long-term traders often treat their occupation as a hobby, and in rare cases as a way to make money.
This type of trader is distinguished by his calmness and composure, as he does not have to make decisions under time pressure. Beginning traders should know that although long-term trading may seem boring, it is associated with lower investment risks and can generate above-average profits.
Forex trader – characteristics of a good trader
The primary goal of a trader is to make a profit. In order to generate a positive result, a trader must have certain qualities and skills, and in particular, he must be active. A good forex trader is one who can make decisions under time pressure and in stressful situations. He must also be sharp and prudent, although at the same time he should also be willing to take risks.
Acquiring knowledge about trading is not enough, as a good forex trader must be able to put it into practice. Patience is also key to success. A trader can make better profits by investing for the long term than if he withdraws too early.
How to become a good forex trader?
The actions and investment decisions made by the best traders in the stock market are admirable. Even if an investor comes to the conclusion that he will not become one of the traders who made a fortune by training, it is worth drawing on the investment strategies used by the best traders in the world. What’s more, top traders often give novice traders advice that is worth taking advantage of. An example is Warren Buffet, who gives the following advice:
- You should invest when the stock price falls to minimum levels. This billionaire made his fortune just by deciding to buy undervalued stocks,
- It is worth investing only in sectors or products that the forex trader knows and understands well. This applies to all types of traders. For example, to become a better forex trader, it is best to focus on the currency pairs of those countries whose economies he is most familiar with. On the other hand, in order to grow in trading, retail traders, especially beginners, are recommended to avoid investing in overly complicated financial products and opt for easier ones, such as ETFs or CFDs (read also: What are Exchange-Traded Funds),
- It is best to invest for the long term, if long-term trading can actually be profitable. However, this depends on the strategy adopted and the effectiveness of each strategy. This means that a day trader does not need to switch to long-term trading at all to become a better investor,
- Limit the diversification of the investment portfolio – this is a strongly controversial opinion. In most cases, it is advisable to buy a variety of financial instruments, and not to invest all the capital in one asset.
Advice from the world’s best traders
Ray Dalio, who made his fortune on trading, thanks to other 3 rules he follows:
- It’s a good idea to estimate how much money you need to have in case something goes wrong and make sure you have more,
- It is best to diversify your portfolio,
- You should gain knowledge by using stock market cycles.
Generally speaking, according to the majority opinion, to become a good trader, you need to meet 3 criteria:
- It is necessary to have a good broker to start with, preferably a well-known one that is regulated and licensed by a European regulatory body, such as the FCA or EFSA,
- You should never invest more money than you are willing to lose. It’s best to determine the maximum amount you can risk and choose the appropriate level of leverage,
- New investment strategies are best tested on a free demo account.
How much do the best traders earn?
Traders’ salaries depend on their skills, experience, but also a bit of luck.
As a rule, a forex trader’s earnings depend on his status, that is, whether he is an individual or institutional trader, as well as the country in which he trades and several other factors. One can distinguish between traders who work for companies and those who work on their own account.
An individual trader invests his money and is rewarded with profits from his trades. The advantages of this type of trading are:
- Great flexibility – a forex trader can work from anywhere with access to the network and trade at any time, of course, during the opening session hours of the market,
- No income limit – if a trader has a profitable strategy, there is no limit to the amount he can earn.
However, this type of trading also has its drawbacks:
- A forex trader is risking his own capital, which can have the effect of raising stress levels,
- It is associated with less security, as you can not rely on a fixed basic salary that is paid automatically each month, especially if one of the months is not profitable,
- Less extensive structure and poor support compared to an institutional trader. Although there are many educational resources designed for traders, the trader is forced to search individually,
- The forex trader will have to either find or develop his own tools to help him improve his trading performance.
If a trader works for a company, such as an investment bank or hedge fund, he or she receives a basic salary and often a commission that depends on performance. Some of the benefits that come with being a trader who works for different companies and institutions are:
- He can use the company’s tools and strategies that are proven and have proven to be profitable,
- There are many training and mentoring programs that are built into the company’s structure. This gives the forex trader more support than if he were to operate on his own,
- The trader does not risk his own money, so the stress of possible loss of funds is eliminated,
- There is an opportunity for career advancement, so you can manage higher client funds or more of them.
However, being an institutional trader also has some disadvantages:
- If a trader fails to meet the goals of the company, which relates to profits, he is likely to face more rules, restrictions, as well as observations,
- Less flexibility – the profession of an institutional trader is mostly associated with work that usually exceeds the standard hours of 9 am to 5 pm,
- It is possible to come across a difficult client and it will take some getting used to working with him,
- Even if a trader does well in the market, he will only receive a certain percentage of his profits, which will be paid as a bonus, instead of the whole of the profits generated.
How to become a forex trader?
Many people think, forex trading is an occupation through which you can earn a lot of money in a short time. However, the road to success consists of several stages.
If a trader is just starting out in trading, the first step he should take is to gain knowledge about forex trading. The best source will be a course on forex trading that has been developed by either a reputable entity in the field or an established broker.
No matter what level a trader wants to reach, there is bound to be a course that will suit his needs. Many websites offer forex training courses to help a trader learn how to trade the foreign exchange market without leaving home, entirely online (read also: Online forex).
Getting started in trading
In addition to gaining knowledge about investing in the foreign exchange market, a trading plan and capital management strategy can be developed. It is necessary to choose the right forex broker.
If a trader intends to follow a conservative policy when it comes to risk management, which is also recommended, he must be aware that this limits the risk of losses, but also the percentage of possible gains. Therefore, the larger the amount invested, the higher the potential losses or profits.
What should a novice trader know?
The forex market stands out from other financial markets. Every trader in the foreign exchange market should know what the current exchange rates are. Moreover, forex traders have developed their own system of terms and concepts that are unique to this market. Any novice who is serious about this occupation should be familiar with forex terminology:
- Fundamental analysis – a way of valuing assets and estimating capital flows based on macroeconomic factors, as well as economic relationships,
- Technical analysis – is a way of analyzing price charts, which consists of graphical representation of relationships in price movements,
- Bid/ask prices – are the values at which the current bid, or bid, and ask, or ask, are quoted. When entering into a transaction, a forex trader buys from sellers, that is, at the ask price, and sells to buying parties at the bid price,
- Long position – a buy position,
- Leverage – multiplies possible profits, but also losses,
- Dollar index – a basket of dollars that expresses the value of the USD against the most important trading partners of the US,
- Lot – a unit that determines the value of a transaction,
- Pip – the fourth digit after the leak in the quoted currency,
- Spread – the difference between the selling price and the buying price, and is measured in pips,
- Stop loss – an order is associated with a specific position and closes it when the price falls or rises, reaching the stop loss level,
- Trailing stop – is a stop loss order that automatically moves behind the price, which progresses in favor of the trader’s order,
- Base currency – is the currency that is priced within a currency pair,
- Quoted currency – is the currency that is used to price the base unit of the quoted currency (read also: Forex currency trading),
- Limit orders – is a type of pending order in a direction that is opposite to the price.
How to choose a good forex broker?
In order for a forex trader to make investments in the foreign exchange market, he must choose a broker that provides an investment platform. It is with its help that the trader can make transactions. So what to pay attention to?
A trader, deciding on the services of the selected broker, entrusts him with his money, and their safety should come first. It is worth betting on a broker that is regulated by such Polish KNF or Cypriot CySEC or FCA. This way the trader is guaranteed that the forex broker is honest and operates in accordance with the law.
The number of financial instruments it offers
This is important not only for long-term investors, but also for those who are looking for a specific financial instrument. As a rule, the more financial instruments, the better. However, it is important to realize that, probably, even if the selected intermediary offers a thousand different financial instruments, the trader will not use all of them.
This is one of the key issues to keep in mind when choosing a broker. Many times traders do not realize how much they are overpaying. There are still brokers, offering 2-3 pips spread on major currency pairs.
It is also worth comparing the offer of an MM broker with an STP broker. With the former, the only transaction cost is the spread, e.g. 1.4 pips. An STP/ECN broker, on the other hand, offers users a settlement model where the client pays a spread of, say, 0.3 pips and a commission for opening and closing a position of $3 each.
Beginner traders often have trouble distinguishing which type will be better (read also: Forex for beginners).
hen it comes to the EUR/USD currency pair and the commission expressed in USD, the matter seems simple. 1 pip for 1 lot on this pair is $10, or 0.1 pips is $1. In this case, if the spread is 1.2 pips, the transaction fee is $12.
Speed of order execution
Not every forex broker can boast of this. It is useful to know what should be the optimal order execution time on the broker’s side from the moment of clicking, to the appearance of the transaction. A time of less than 100 ms is good, but most traders are unlikely to notice if the time increases to 200 ms. 100 ms equals 0.1 seconds. In this case, the faster the broker executes orders, the better.
The speed of order execution is important, especially at a time of high volatility in the market, as short-term traders are well aware.
Initial deposit required
This is the minimum amount of money that a forex trader must deposit in order to use the selected type of forex account. Recently, the requirements at brokers have decreased significantly. It is advisable to use common sense, and in case a trader wants to invest USD 1,000 to start with, and the broker’s account starts with USD 10,000, this should mean rejecting such a broker.
A very important, although not necessary for all traders, issue is the quality of customer service. You can imagine a situation when you need to quickly execute a transaction, and the forex platform refused to obey, the trader’s internet went off. Then a quick and efficient contact with customer service can save his funds.
A forex platform is a trader’s tool and one of the most important things to consider when choosing a broker. It is best to bet on the most popular tools, such as the Meta Trader 4 or 5 platform. Important aspects to consider include stability, the ability to effectively manage the market and trade efficiently, as well as the ability to enter and exercise control over investments at any time and anywhere in the world.
It would be good for a forex broker to offer training, interesting analysis, as well as other useful benefits that can help you make better investments. It is worth knowing that training on financial markets is often very expensive, so if the broker offers an educational section, it is worth taking advantage of it. Contrary to appearances, these are often much better materials than those that can be obtained from paid training courses.
Forex brokers – which one to choose?
Polish forex brokers often offer attractive terms of their services. So it is worth considering using such brokers presented below.
This is a Polish broker that offers a proprietary xStation trading platform and allows you to invest in commodities, currencies, indices, CFDs cryptocurrencies, stocks and ETFs. The XTB forex broker stands out from others with its extensive educational base. In addition, it offers a free forex demo account and access to foreign markets. The account can be held in USD, PLN and EUR, and fast transfers are free.
This broker offers traders a wide range of financial instruments. Using its services, one can invest in Forex, stocks, indices, ETFs, commodities and cryptocurrencies. The broker provides traders with the Meta Trader 5 platform, which can be used on both mobile and laptop platforms. The app is valued primarily for its recommendations, advice, news, interactive charts, as well as the ability to check other players’ investment types. For opening and maintaining an investment account, this forex broker does not charge any fees.
Read also: Trading app – which one to choose?
Alior Trader is an investment account of Alior Bank. It is the first ECN type broker in Poland. It has been operating since 2011 and is doing relatively well. It is worth noting that the Alior Trader platform is the only option available to investors. Nevertheless, the platform has good reviews among customers and is available in three versions, including a mobile app.
Forex platforms – which one to choose?
Among the most popular platforms available on the market, by far, is the Meta Trader 4 forex platform. However, proprietary platforms such as xStation, eToro platform or Plus500 are also gaining popularity.
Read also: Forex investments
This is a web-based, desktop and mobile device platform. It offers access to many financial instruments, as well as fast deposits and withdrawals. Users can use great investment tools designed for technical analysis. It offers 16 different exchanges and an extensive education package.
This is an easy-to-use web and mobile platform. It offers access to many financial instruments from one place. It’s a global broker that boasts high security (read also: How to invest on Plus500).
Meta Trader 4
This is a very popular platform among traders. It offers the possibility to create automatic strategies. It offers a large number of tools for technical analysis. It is a global broker with a long history. It gives access to CFD instruments for stocks, commodities, currencies and indices (you may also read: Which is the best CFD broker).
Foreign forex brokers
To start forex trading, you can also open an account with a foreign broker. Which ones are worth paying attention to?
This forex broker started its operations in 2007. Its headquarters are located in Cyprus and it is licensed and regulated by CySEC. This institution guarantees the integrity, as well as the security of data, of this broker. What’s more, this broker guarantees the safety of its clients, as well as the payment of the money earned in case of bankruptcy of the company. Thanks to this, the trader does not risk being left empty-handed if the broker goes bankrupt.
The eToro platform features a user-friendly design, many features, intuitive operation and a forex demo account. This allows forex traders to test the platform in advance and check its features.
This CFD broker was established in 2014. The broker is regulated by the FCA. As a result, traders can rest assured that their funds are safe and that transactions are fair and legal. Deciding to use the services of this broker, traders can use a popular platform such as Meta Trader 4, a proprietary WebTrader tool or a mobile application.
The platform allows you to trade CFDs on stocks. It can also be found with more than 450 other commodities, assets, cryptocurrencies and indices. The platform offers a number of trading tools, which can be used through the Alvexo Plus program. This allows traders to check current trading signals, further educate themselves through online TV, or create trading strategies.
Is regulated by the Cyprus CySEC. It provides the Meta Trader 4 investment platform, which is known for its ease of use and functionality. The demo account offered by the broker will allow you to test the platform without the risk of losing real money. In this case, you can trade currencies, stocks, cryptocurrencies, commodities, as well as other assets (read also: Investing in cryptocurrencies).
This Forex broker is regulated by the Cyprus CySEC, and the margin rates include restrictions that have been imposed by European Union laws. This broker has been on the market since 2012 and provides a transparent and intuitive platform that will also be suitable for beginners. If a trader is unsure about it, he can test it on a demo account. Moreover, this broker also offers access to Meta Trader 4.
Professionals will surely be pleased with the fact that this broker gives access to a large number of investment tools, as well as many additional aids.
What to consider when choosing an investment platform?
The issues you should pay attention to are:
- Demo account – allows you to test the platform and learn how it works, without risking the loss of funds,
- Access to analytical tools – it is important that the platform offers charts, industry news, oscillators and suggestions – all of which are sure to be useful to a trader in trading,
- Large selection of markets and financial instruments – some people are only interested in one financial instrument, while others appreciate a wide range,
- Trading training – free training materials are very important especially for novice traders,
- Affordable interface – in the long run, convenience is as important as functionality. Therefore, the affordability, transparency and intuitiveness of the interface play an important role when choosing a broker,
- Mobile version – nowadays most people are constantly on the move, so traders are looking for a way to have the exchange always at hand. It is best to choose a Forex platform that has its own mobile version,
- Customer service – an ideal broker’s customer service should be round-the-clock, available in a variety of ways, and characterized by quick response. The best forex brokers boast expert assistance and a customer service department.
How to open an account on the Forex platform?
Setting up an investment account is very simple and can be done in a dozen minutes. All you need to do is follow the instructions that are provided in each case. First of all, you need to go to the website of the selected Forex broker. There, you need to provide a login and password, an email address, as well as fill out the registration form. It is also necessary to confirm one’s identity by sending a scan of an identity document, such as a passport, driver’s license or ID card.
The prospective forex trader must also confirm his place of residence, such as a bank statement. Once all this is positively verified, he can deposit money into his account and make his first transactions.
Forex trading and investment risk
Every forex trader must be aware that there is always an investment risk when trading. The knowledge and tools offered by the chosen platform, allow to reduce the risk of losing funds, but do not eliminate it 100%.
Using leverage, traders can trade with much more capital than they have on deposit. Retail traders record losses if they approach the topic of leverage with recklessness. For this reason, many such accounts are quickly closed.
Leverage, of course, also works the other way and allows you to generate large profits. Everything depends not only on your skills and knowledge, but also on a little luck.
Is it free to use investment platforms?
Brokers make money by providing a forex platform and financial instruments such as stocks and CFDs. However, the high level of competition in the market is driving down costs for using brokers. Usage fees vary depending on the forex platform provider.
A future trader should pay attention to such fees as:
- Spread – is the difference between the bid and ask price. The lower the spread is, the better for the trader,
- Order fees – in addition to spreads, some brokers also charge order fees. These vary depending on the brokerage offering. While some do it for free, other brokers charge additional fees,
- Account fee – it’s worth checking whether a monthly fee is charged for using the platform. It is often the case that brokers do not charge an investment account fee,
- Withdrawal costs – when a forex trader wants to withdraw the money earned using the platform, there may be additional costs. They are usually fixed and do not need to be paid too often. Profits are usually withdrawn once a month.
The offers differ from each other depending on the selected brokers, so before deciding to use the services of a particular broker, it is best to carefully read the terms and conditions and the costs that are charged in connection with the establishment and use of the account.
Forex trading – what is worth remembering?
There are several universal ways to operate more effectively in the foreign exchange market. It is worth learning them and putting them into practice.
Learning the basics of trading
Before a trader decides to make his first trades and investments, he should gain knowledge of the subject. There is nothing to throw yourself into the deep end without prior preparation. It is advisable to prepare properly by using various sources, including training courses, both classroom and online. Webinars, eBooks, audiobooks and online articles are also good sources. The basics in trading and the terminology associated with trading in the foreign exchange market will certainly help a trader in taking his first steps in Forex (read also: What is forex).
It’s all about diversifying your investment portfolio. A forex trader should not allocate all his capital to one type of asset or to buy financial instruments from one type of industry. Diversification is simply buying a variety of assets, not just one type. In this way, you can protect yourself from losing all your capital.
Invest in those instruments that you know
In the beginning, it is best to decide on adequate knowledge of the chosen financial instrument and invest your funds only in it. Only as you gain knowledge, experience and skills should you make investments in other financial instruments.
Acting without a plan is not the right move. Beforehand, it is necessary to choose an investment strategy, according to which the trader will operate in the Forex market. He can decide to choose one of the ready-made strategies, which are available at least on the Internet, or create his own individual one, drawing elements from various ready-made ones.
Forex trading is an occupation that requires constant learning and expansion of knowledge in this field. Every trader should be prepared for this. The knowledge is extensive, and you also need to keep up to date with all the trends and news from the world of finance.Therefore, you should take advantage of the knowledge that the broker of your choice offers, but also from training courses, such as online.
Read also: How to invest in currencies online
Acceptance of risk
Investment risk is an inherent element associated with trading and investing in general. Already at the outset, a trader should accept it and accept the possibility of failure and loss of even all capital. This makes it easier to come to terms with the possible loss of money.
Investing limited funds
Only those funds that are “free” should be allocated to forex trading. This means that only those funds should be invested, the loss of which will not adversely affect the trader’s household budget. If an investor starts borrowing money to invest from relatives or loan companies, this is already gambling. This is something to be wary of.
In forex trading, cold calculation is also important. Unfortunately, when you are investing money, it is not easy to approach it completely without any emotions. It’s a very difficult skill to develop, but it’s very important and comes with many benefits. Acting and making decisions under stress or excitement can be counterproductive. It is best to evaluate investments in cold blood and without undue emotion. Professionals know this well.
To become a good trader, you need to acquire knowledge, or at least the basics of forex trading. Experience is also important, but this cannot be gained in a few days. Also, a little luck will certainly come in handy. However, many more factors influence the effectiveness of your investment, including the choice of forex broker, the operation of the forex platform, etc. Also, do not underestimate the investment risk and act in such a way as to reduce it as much as possible.