What does a forex trader do? What is forex trading?

What does a forex trader do? What is forex trading?

Forex trading is more than buying and selling currencies.

A forex trader needs to follow a step-by-step process for success.

Let’s find out what a forex trader does and what is forex trading.

Ted Capwell

Content

A lot of people ask me, what do you do as a forex trader?

They are curious to know what my daily routine looks like.

Daily routine

Because they also want to enter the world of forex.

So, while searching for new topics, I had a thought.

Why not combine forex trading and the role of a forex trader.

This will get the confusion out of the way.

If you are a beginner, you’ll get two treats.

First, you’ll know about forex trading.

And second, what’s the job of a forex trader?

So, let’s get into it!

What's a forex trader?

What's a forex trader?

Forex trading is more than buying and selling currencies.

A forex trader needs to follow a step-by-step process for success.

Let’s find out what a forex trader does and what is forex trading.

You decided to enter the market.

But seeing all those prices go up and down is making your head spin.

So, let’s explain a forex trader in simple terms.

A forex trader buys and sells currency pairs.

They speculate on the movement of a pair/pairs.

They go long or short (we’ll get into long and short later).

Forgoing long and short, they pick a strategy.

Either it is a technical strategy, a fundamental strategy, or a combo of both.

The strategy is the key ingredient.

It separates pros from amateurs.

Trade Forex

Based on a strategy, a forex trader exits the trade.

This is the most basic definition of a forex trader.

However, things aren’t as simple as they look.

The definition of forex trader is too broad.

That is the beauty of forex trading.

Don’t want to focus on the markets all day for five days?

Stay away from scalping and choose to trade long term.

Don’t want to wait a few days or months to potentially make a profit?

Don’t fret.

You can focus on day trading or scalping.

The forex market runs 24/5.

That’s a big plus for a forex trader.

As they can enter the market any time, they want.

How to become a forex trader?

Now that you know what a forex trader is, let’s move to become a forex trader.

Forex trading has low entry barriers.

You can hop on the forex train without any hassle.

What you need to do is follow a step-by-step process.

The first step is to understand the market.

Understanding the market means what the main drivers are.

Currencies have national governments behind them.

So, a country’s policy or overall situation can also affect its currency.

The factors include; economic, political, and geographical.

These are the main drivers of the forex market and are fundamental factors.

We can’t control fundamental factors.

We can only devise a strategy by keeping up with the news.

Another aspect of the market is technical analysis.

These include charts, indicators, and patterns.

With their help, you can create a strategy.

And trade pairs without breaking a sweat.

The second step is to choose your trading style.

Your trading style depends on how you want to trade the market.

Forex traders have different styles depending on the timeframe.

Longer timeframes are 1-day, weekly, and monthly.

While shorter timeframes are from 1-minute to 4h.

In a longer timeframe, you make fewer trades and require minimal attention from you.

On shorter timeframes, you make more trades and monitor your screen constantly.

Let’s break down trading styles for you:

  • A scalper trader frequently takes multiple trades in a day.
  • A day trader takes one or various trades in a day.
  • A swing trader captures market lows and highs and trades on longer timeframes.
  • Finally, a position trader applies a long-term strategy that can last for months and years.

To become a forex trader, you have to choose between these styles.

The third step in becoming a forex trader is to grasp market terms.

Without knowing market terms, forex trading is a shot in the dark.

Forex explained

Here are some key terms you need to grasp:

Currency pair

A currency pair defines two currencies.

In the forex market, currencies trade in pairs rather than separately.

The forex market has three pair types; majors, minors, and exotics.

Major pairs have USD in them.

These include;

EUR/USD, GBP/USD, USD/JPY, AUD/USD, NZD/USD, USD/CHF, and USD/CAD.

Minor pairs don’t have USD.

These are;

EUR/GBP, EUR/AUD, GBP/JPY, EUR/JPY, EUR/CHF, EUR/CAD, and others.

Exotic pairs are the combo of major with the currency of a developing nation.

For example;

USD/MXN, USD/SEK, among others.

Base/Quote currency

The price you see on the left side of a pair is the quote currency.

The price you see on the right side of a pair is the base currency.

Bid/Ask price

The bid price is the price for selling a currency pair.

The ask price is the price for buying a currency pair.

The difference between bid/ask prices is the spread.

Going long/short

By going long means, you are buying a pair.

By going short means, you are selling a pair.

PIP

It’s an acronym for percentage in points.

It represents the smallest movement of a pair in decimal points.

Usually, it is the fourth decimal point for a pair.

For instance, EUR/USD shows up as 1.1600.

JPY pairs are the only exception.

They are quoted as two decimal points.

For example, USD/JPY is quoted as 114.00.

Lot size

A lot is the size of your trade.

It equals the number of units of a base currency.

It comes in three forms; micro, mini, and standard.

The micro lot equals 1000 units and has a pip value of $0.10.

The mini lot equals 10,000 units and has a pip value of $1.

The standard lot equals 100,000 units and has a pip value of $10.

Suppose you are trading one standard lot.

Every pip movement in your favor will bag you $10.

If the total movement is 100 pips, then you get $1000.

Bullish/Bearish

When the price is going up, it’s a bullish move.

When the price is going down, it’s a bearish move.

How to become a pro forex trader?

How to become a pro forex trader?

Anyone can become a forex trader.

But if you are in this for the long run, you need to become a forex pro.

These are the people you hear stories of.

They don’t have a Midas touch.

All they do is follow their rules.

Here are the rules of becoming a forex pro:

1. The pro forex traders are action takers

Learn the market, know the secrets if you want to achieve a pro-level.

The pro forex traders are action takers

At the end of the day, if you cannot take action, then forex isn’t for you.

2. Pro traders risk what they can afford to lose

It’s not a good thing to risk gazillion dollars if you can’t afford to lose it.

You can’t risk your bills money for trading.

Pro traders are smart, and they compound their growth.

Rather than allocating all the funds, they grow their funds day in day out.

3. Pro traders know they are in the risky business

Forex is not all about profits.

In fact, 95% of beginners lose when they start trading.

Pro traders know that losses are part of forex trading.

They accept their losses and move on.

4. Pro traders are always curious

Learning is the stepping stone of forex trading.

Pro traders tend to read blogs, books and gather as much info as they can.

When I first met my mentor, he said, “Learn, learn, and learn.”

It takes the confusion out of the way.

It also helps you in developing a trading strategy.

Get the right education, and you’re halfway there.

The rest you learn by doing real trading.

What's a forex trader's daily routine?

What's a forex trader's daily routine?

Anyone can become a forex trader.

But if you are in this for the long run, you need to become a forex pro.

These are the people you hear stories of.

They don’t have a Midas touch.

All they do is follow their rules.

Here are the rules of becoming a forex pro:

Remember when I said people want to know what my daily routine looks like.

My daily routine is similar to other traders.

Let’s find out how a forex trader spends his/her day.

Forex traders typically wake up early.

After breakfast, they check their existing positions, if they have.

After that, they will check the news, forex rates, charts, or currency heat maps.

Doing actual trading depends on the trader’s style.

If someone is a scalper, he/she will remain glued to the screen most of the time.

The bulk of a forex trader's time is spent doing analysis

If a trader is a position trader, then they will check their positions once or twice.

The bulk of a forex trader’s time is spent doing analysis.

This ensures how they want to proceed with trading.

And helps them in developing a trading strategy.

What is forex trading?

What is forex trading?

In the first part, I discussed a forex trader.

In the second part, I’ll talk about how he/she is trading.

Forex trading is the most liquid market in the world.

That’s the reason why many people want to ride the forex train.

Let’s see what is forex trading, and how the market works?

Forex trading is a way of trading one currency for another.

The main aim of forex trading is to predict the values of currencies.

These values rise or drop according to supply and demand.

If demand is high for one currency, then it’ll rise against the other.

If supply is high for one currency, it’ll dip against the other.

In forex trading, each currency has its code.

For example, the code for the US dollar is USD.

How does forex trading work?

In forex trading, currencies are always traded in pairs, called ‘currency pairs.’

That’s because whenever you buy one currency, you are selling the other one.

Each currency pair is made up of two parts: base and quote currencies.

For example, let’s take a look at this currency pair:

GBP/USD = 1.40

Here, the base currency is GBP.

The quote currency is USD.

This means that £1 is worth 1.40 dollars if you want to buy.

Currencies are traded online through a forex broker.

As I mentioned earlier, the market remains open 24/5.

Although I did define bid and ask prices earlier, I’m gonna define them again.

When you buy a currency pair, the price you pay is called the ‘ask.’

When you sell, the price is called a ‘bid.’

And the difference between these prices is the spread.

It generally appears at the bottom of the price quote.

These are a bit confusing at first.

But you have to remember them.

Here’s a quick look at the bid/ask prices.

A quick look at the bid/ask prices

What is leverage in forex trading?

The concept of leverage is important in forex.

Leverage is like a loan that you can get from your broker.

This can increase your purchasing power.

And you can trade with a large amount of money.

It is quoted in ratio.

For example, 1:10, 1:100, 1:200.

To get leverage, you have to put down a small deposit, called a margin.

Leverage is a two-edged sword.

It can make or break your trading strategy.

So, it’s important to use it carefully.

If you are a beginner, I would recommend using no more than 1:50.

Pros and cons of forex trading

Pros and cons of forex trading

Before I conclude the article, I want to tell you about the pros and cons of forex.

Let’s face it, no financial market is perfect.

Therefore, there are some drawbacks to trading forex.

Let’s find out the pros and cons.

Pros

Forex is a huge global market, which means plenty of opportunities.

It is the most liquid market in the world.

You don’t need much money to enter the market.

Forex runs 24/5.

Cons

Currencies constantly fluctuate and have high volatility.

Using excessive leverage can wipe out your account.

Currency exchange rates rely on certain factors for their fluctuations.

Final thoughts

I’m sure by now you will have an idea of forex trading.

If you want to become a forex trader, you need to follow certain rules.

Remember, anyone can become a forex trader.

But not everyone can become a pro trader.