Congratulations on taking the first step of an exciting journey.
Learning about what is a forex trader could be a defining point in your life.
Seriously.
You may be curious about what is a forex trader, but this very article could spur you on to become an fx trader full time.
How does that sound?
Today you are going to learn exactly what is a forex trader and what it takes to become one.
Not only that but we will get you on the right track and provide some tips and steps you must understand before committing to forex trading.
So make sure you read on until the end for the bonus content…
With that being said, let’s get this answered by an expert:
What Is A Forex Trader Meaning
So, what is a forex trader mean?
“A [forex] trader is a person or entity, who buys and sells financial instruments such as stocks, bonds, commodities, derivatives, and mutual funds in the capacity of agent, hedger, arbitrageur, or speculator.”
In other words, the forex trader meaning is:
It’s a person who actively takes part in speculating in the forex markets, specifically. fx traders are people who invest in the markets but specialise only in the currency markets.
Many people shoehorn forex traders as a single type of ideology of speculating the markets.
This is untrue.
The definition is too broad when in reality there are many sub-categories.
That is the beauty of forex trading.
You can literally manipulate this life skill and mould it to suit you.
Don’t want to focus on the markets all day for 5 days straight? Stay away from scalping and choose to trade long term – picking trading ideas that could span out over the next few months. These people tend to incorporate economic news and data points more.
Don’t want to wait a few months to potentially make a profit? No problem. You can focus on trading in a smaller time frame.
You see, thanks to the global economy and now that we are connected via the Internet; the forex markets are open 24 hours a day between Monday and Friday.
Ideally, our definition of “What Is A Forex Trader Definition” would be:
A person who speculates on the forex markets trading different currencies using their own funds.
A forex trader can take advantage of the currency markets by choosing exactly how they want to trade, whether it’s short-term or long-term, using automated trading strategies or manually trading themselves for them to generate positive returns in the markets.
Now you have a grasp of what is a forex trader, it’s time to find the differences between another type of trader:
Forex Trader Vs Stock Trader
Following on from the definition – it is important to highlight specifically is the difference between a forex trader vs stock trader.
Many people believe they are the same thing.
When technically it’s true because you can be both – you are not limited to being either of them.
Many people choose Forex due to the lower barrier of entry (but this can be dangerous to beginners), lower costs and flexible trading times.
On the other hand, people with more starting capital tend to focus on becoming stock trader because they believe they can read and understand a company better than an economy.
Look at it this way, it’s easier to understand what Apple does as a business, how they are doing, and where they are going than it is understanding what the ISM data points are telling you in the US.
Reasons why people choose to become a forex trader vs. stock trader
As touched on before, the main difference between the two “types” of traders is that they choose to specialise in one asset only.
To be honest, you’d want to be able to trade all assets available.
- Forex
- Stocks
- Indices
- Commodities
- Bonds
Limiting your style may make it more comfortable to trade or seem like you don’t need to be spinning as many plates but being able to understand other assets will explode your knowledge and ability to profit in any trading environment.
The core concept of a fx trader is to be adaptable to any situation.
The argument of which is better between forex trading vs stock trading is quite redundant because I believe you should be both.
That being said, the main reasons why people choose to become a forex trader vs stock trader are:
- Lower barrier of entry – you can get leverage to trade forex, which allows you to control an asset for a smaller deposit. Think about putting a deposit down on a house, you get to own the house in your own right, but you borrowed from the bank to pay for the house in full.
- Quicker trading opportunities – forex is one of the most liquid assets a retail trader can take part in. As there is more liquidity, it means prices are easily matched and trades are executed fast. This allows people to trade during the day easily.
- Lower trading costs – Unlike stock trading, there is no commission on transactions + stamp duty (in the UK). You only pay the spread which is the difference between the bid/offer price.
Pros & cons of being a fx trader
Pros
- Take advantage of smaller market movements
- Lower costs associated with forex trading
- Lower timeframes tend to be more interesting to follow via technical analysis
Cons
- Susceptible to overtrading
- Leverage if not managed properly can lose more money than deposited into a broker account.
- Hard to trade without the correct forex education.
Pros & cons of being a stock trader
Pros
- Easier to understand as you can follow the company specifically and view their details to make an informed decision.
- Ownership of shares – you may receive dividends and also voting rights.
- Generate a portfolio for income
Cons
- Higher fees
- Can only trade during the market hours which closes each day.
- Market news outside of trading hours can make the price open severely down, or up, depending on the impact of the news.
Whichever you want to be, at the end of the day it is down to preference. If you want a head start, you can read our free guide on Forex Trading for Beginners.
Forex Trader Requirements
What does it take to become a fx trader?
Firstly, it is important to figure out if being a trader is for you.
The Best Fx Traders Are Action Takers…
It’s not a hobby to dabble your hard-earned money, spending time potentially chasing losses because you are unwilling to put the work in. Spending more money on education from overpriced vendors – more money on education than you are willing to risk.
If you are willing to pay for a course worth £5k, yet hesitant to put £5k into a trading account then you have your reasons skewed.
The requirement is the ability to take ACTION.
If you are someone who wants to read until your eyes bleed about how to trade, you will be at square one for eternity. You need the internal instinct within to have courage and belief in yourself to take action.
At the end of the day, if you are unable to take action (or are scared to), you will never be able to claw back the money spent on trading education or grow your capital.
The Best Forex Traders Invest What They Can Afford…
One key aspect we talk about here is to ensure that you can afford to lose the capital you want to risk.
One concept devised by John Templeton and promoted heavily by Tony Robbins is the Three-Bucket Asset Allocation:
- Security Bucket – safe investments, fixed income, small but reliable growth.
- Growth Bucket – high-risk investments that have unlimited growth potential; ideally you’d be using this bucket to invest into Forex IF you are confident enough.
- Dream Bucket – A bucket to save and spend on large purchases e.g) Once in a lifetime vacation, new house, new car.
If you have capital saved for growth, by that we mean that all your bills are covered and you have money saved up for a rainy day/emergency, then you should consider becoming a fx trader.
With certainty knowing that if things turn out badly, you will not be affected by it. This will help you become a much better trader overall.
The Best Forex Traders Know That They Are In The Business Of Risk…
This might sound obvious, but no one – and I mean no one – wants to lose money.
They know that they HAVE to lose money and WILL lose money at some point.
I still get surprised when someone says they want to invest and how to learn forex trading but don’t want to lose any money.
These people are unsuitable for trading.
One of the requirements is to be able to accept the losses and move on as if nothing happened. As if it’s just a normal course of action. If you can’t do that then you violate these requirements and hold yourself back as a trader.
The Best Forex Traders Are Curious & Want To Learn More…
Learning how to trade is just a foundational requirement for becoming a forex trader.
In fact, in order to adapt and move forward for any uncertainty, you must want to learn about the economies.
It may sound boring, but I’m sure you’d agree that if you knew where an economy was heading 18 months before it arrives, 99% of you would like to know – right?
The most successful traders read the data points and build their positions around the overall macro trend. This allows the fundamentals to help deliver and drive their profits home – with less stress!
Forex trader common setups
Most traders take it serious work from their desktops.
Now that’s not to say that trading via the smartphone or tablet is bad – or they don’t take it seriously – it’s just the amount of data, chart setups and incoming news that makes the desktop king.
Nowadays, with the speed of the internet and the ever-improving technology to display trading terminals on – you can find the most common platforms and data streamed to any device.
The most common is still desktop setups with 2+ trading monitors.
This is because most desktops are fast and have enough screen estate to allow trades to quickly absorb as much information as possible at a glance.
Whereas on smaller screens, the screen sizes are smaller and charts are squeezed in making it more difficult to view the bigger picture as quickly like on trading laptops.
At the end of the day, speed is king to decision making in the markets.
Common starting capital
The most common starting capital is actually quite small – around £1-5k initial starting capital.
Many beginners start with smaller balances, around £200-500 – but they soon find themselves topping it up with more. Especially if they are losing their money. Furthermore, they find themselves unable to trade all the opportunities they see because all of their capital is tied up.
Remember, not every trade is going to be a winner!
Ideally, you want to start with £10k-25k to start with. This will be ample enough for you to take trades and grow your account steadily over time.
Common trading platforms
The most popular forex trader platform is the Metatrader 4 platform (click the link for a complete rundown).
Metatrader 4 is available through most forex brokers for free. It provides a terminal-like interface, customisable charting, customisable indicators and is super easy to use.
(If you are looking for a forex broker, read our review here)
How To Become A Forex Trader
Firstly, let’s define exactly what is meant by the term “professional trader” as there are two types:
The first type is someone employed to execute trades on behalf of an institution and must be regulated with the appropriate qualifications.
The other, a more common form that people think about, is when you are trading your own account(s) and solely rely on profits generated from forex trading to earn a living. Below we’ll outline the core principles required on how to become a forex trader.
What does it take to become a professional forex trader?
To become a pro, you need to be good enough at generating returns frequently and reliably. This isn’t to say it’s for everyone.
The key difference between a retail trader and a professional is that the professional treats trading like a business.
You must also have a sizeable check of capital to make it worth your time. Starting with £1k is not going to make you a professional.
If you want to do this full time, then you also have to realise that your performance will be impacted every time you withdraw for income/bills/spending money. Which is the short-term could impact you.
For example, professionals would use a metric known as Kelly’s Criterion to easily scale their trades up when they are performing well – yet scale their trades down when they are underperforming.
Mindset required
As discussed, you need to be business-minded to be able to stay concentrated on the markets for several hours a day.
Not only that, but you also need a passion for this.
Trust me, if you have no passion for trading, the markets or the data points – I can imagine it’s an absolute drag!
You need to be resilient to the losses and certain in your own ability to overcome them in the next few trades.
Most professionals in institutions have a 50% strike rate on their ideas. If you are above that, or near that level. You are doing exceedingly well.
Capital required
For you to be a serious professional you need a sizable amount to start with. Not only that but enough money outside your trading account to cover your bills.
To ideally start considering professionally trading forex you want at least £50-100k.
However, there are always exceptions in this case. For example, you can be good enough with £10k to start with whilst outside of trading you have another job or receive a side income.
Education required
The right education is key.
To be honest, you can learn an awful lot about trading for free.
At least, all the core principles to look out for and how to read the charts effectively enough to understand where the market is and where it is heading towards.
Trading isn’t rocket science, but it requires the best free forex course and education to even have a chance of your capital surviving, let alone your mental wellbeing.
Losing money will have a negative effect on you.
We recommend to trading/going live after successfully growing a demo account by 50-100%+ with the capital they would actually deposit into an account. Not only that, logging every trade with a rationale behind it to log it to memory.
Once you’ve received the right education and traded on a demo account until you are consistently profiting – then you have the solid foundations of being able to trade professionally.
Following these simple tips, you will be on your way to fully understanding how to become a forex trader in no time.
Type of Forex Trader
Technical or Fundamental Analysis based?
A technically focused trader is someone who only uses price action, such as candlestick patterns, and indicators to generate trading ideas.
This is called technical analysis.
Whereas a fundamental analysis focused trader generates their trading ideas by using the key economic data points to judge the strength of economies against one another.
Both have their strengths and weaknesses, but the best traders in the world combine both forms of analysis.
Fundamental analysis to capture the bigger picture opportunities and focus on trading in the direction of the forex market as a whole.
Then technical analysis to execute their foreign exchange trading ideas more precisely in lower time frames.
For example:
If the main theme of fundamental analysis is that the US economy is weakening, whereas the United Kingdom economy is strengthening – the view in a long term approach is that they sell USD and buy GBP.
This would translate to a professional to only looking for buying opportunities in the GBP/USD cross.
Because the momentum and fundamentals are driving the price upwards, there is a high chance of making a profit buying – rather than trading against the trend and shorting the asset.
You can still take short opportunities (to profit when the forex market falls), but if the fundamentals are strong and clearly indicate an opportunity to buy GBP over the next 3-6 months, then you will want to be taking currency trades where the smart money is doing so as well.
To put it into other words, in the ocean institutions are the sharks and currency traders are the feeder fish that stick to the sharks as close as possible to get a free ride and protection.
Otherwise, you could be just their next dinner!
Timeframe & Trading Style
Currency traders can be categorised into different types further by how long they hold on to a trade, or which timeframes they focus on.
The higher the timeframe, the fewer trades are taken, yet the more pips that can be captured.
The lower the timeframe, the more trading opportunities are available, yet there are fewer pips to capture.
Most people see currency traders as only intraday (people who trade during the day, 5 days a week). Therefore, many beginners only focus on this – which may not be right for them!
Most trading styles are covered by these categories:
- Scalper – someone who trades frequently, taking small profits but often during a single trading day.
- Swing Trader – A swing trader is someone who wants to capture forex market reversals at the earliest stage from the swing low to high (swing trading) of a forex market trend and vice versa.
- Trend Trader – someone who waits for a valid trend to formulate and would then trade forex with it. “The trend is your friend until the bend at the end”.
- Carry Trader – someone who wants to collect interest on the currency pairs they hold. This can produce income for the trader.
The different styles above go from the shortest timeframe to the largest forex trading timeframes.
So, a scalper can be in and out of a trade within seconds, whilst a carry trader can hold their position for months or years.
In addition to the timeframe, the risk reward ratio goes from smallest to highest. So again, with scalpers, they may look for 10-20 pip moves – whereas a trend trader may be looking for 1,000 pip+ moves.
Is there a style you like the sound of already?
By now you should understand what is a currency trader and at the very least pencilled in the route you want to take.
Forex Trader For Beginners
Moving on from understanding what is a forex trader, it’s time to make progress and delve a little deeper.
We talk about this a lot on our free forex course and that is trading is easy, but you have to go through some (financial) pain before you can gain.
You should have heard the expression “no pain, no gain” already.
This is true, but the pain is GOOD. Pain reinforces us to make better decisions next time.
Learning to trade is as easy as reading a book on how to learn forex trading. (Here are the best forex trading books available)
Knowing how to trade forex is a different story altogether.
This is due to concepts that cannot be transferred or taught, such as mindset, experience, recognition and repetition of trading.
The above are forged over many days, months or years of trading.
Here are some core tips to help build out your learning, as a forex trader for beginners:
Tip 1: Don’t spend a penny, yet.
When there is SO much money to be made trading, it seems like a quick fix will accelerate you to your financial abundance.
In business, it’s the businesses that spend the most to get the client.
However, as a complete beginner in trading, you should put your wallet (or purse) away.
The best price in the world is free, and there are a lot of amazing resources out there that are free to grasp the underlying concepts of trading.
99% of the courses out there are just repackaged free content with a price tag on it.
At least with the free content, you will keep your hard work money to yourself whilst you are trying to learn how the forex markets work.
Remember, about 60% of your success will be from learning how to trade forex and the remaining 40% will be from actually trading.
There are services that provide strategies, these are shortcuts to finding proven blueprints on how to generate trading ideas, but without the core knowledge to execute the trades – the strategies are worthless.
So as the main tip, forex trader for beginners, keep your money for now. If you find someone, ask them questions and get a feel for what they are selling.
Tip 2: Avoid Trading Signal Providers.
Telling people NOT to use these services is like telling your friends you’re only going out for one beer.
No matter how many times you say it, you still ignore it.
Now, don’t get us wrong – some, and we mean a very small percentage, are okay.
The rest just want you to open up broker accounts (where they get back pay for you opening an account) to follow their signals blindly.
You are better than this. Learn to trade.
Tip 3: Accept You, Will Lose
As soon as you let go of the idea that you will be able to trade forex at a 95% success rate without losing a penny the better.
Trading involves risk. Risk of losing funds and risk of your emotions taking over.
Trust us, losing money can be hurtful. Especially 5 figures+…
The soon you accept that it’s normal, the sooner you will lose your focus and emotions on “losing” a trade and finally focusing on winning trades.
As a beginner, if you have several positions open and they are all losing 9/10 you would cut them because they are in the red. Your focus is to stop the losses.
When in reality, they have yet to touch your stop loss. The predefined area of the forex market you were happy to get taken out of if the trade went against you.
Beginners cut their winners short, and their losses quicker.
Veteran currency traders let their winners run and cut their losses at the stop loss.
Just with these tips alone will hopefully push you in the right direction and save you some money!
Forex Trader Tips To Help You Succeed
Tip 1: Focus on 3 currency pairs only to begin with – EUR/USD, GBP/USD, JPY/USD. Why these pairs? Because not only are they majors but all the other crosses are forex pairs that correlate. So you know that if the EUR/USD is rising, then you can expect the GBP/USD to rise and the JPY/USD to fall.
Tip 2: Practice using past data – we have a trading simulator that plugs into the MT4 platform that allows you to practise with real market data and in real-time, using past data. This is super useful as you can review trading ideas in real-time, speed up the markets on demand, to see how it plays out. This alone will speed up your learning.
Step 3: Only use the amount of money in a demo account as you would in real life. Only going to deposit £1,000? Use a demo account with £1,000. That way you limit yourself from trading bigger than you would in real life, plus it would make it slightly more realistic.
Tip 4: Migrate from a demo account to a live account and start SMALL to begin with. When you finally deposit to a live account, start with the smallest trade size and work up AS you profit.
Tip 5: Stop looking for the holy grail of trading. Becoming a forex god isn’t worth it.
All you need to know is the market structure, supply and demand zones, candlestick patterns, and support and resistance levels.
Tip 6: TAKE ACTION. Don’t be a tyre kicker and want to learn EVERYTHING before you start trading. Get the right education and you’re halfway there. The rest you learn by doing!
Conclusion
Now you have managed to learn and grasp some of the major concepts of what is a forex trader, as well as getting some tips to help shed a light on the subject.
One of the main things you must ask yourself is:
“Will I enjoy it?”
If you don’t want to work long hours, research economies and look at a computer screen (or 4) per day then trading may not be for you.
Be honest with yourself, as it’s not as luxurious as people make it out to be.
However, if profiting from news events or price action patterns sounds fun – then you should certainly continue your journey and learn more about trading forex.
