Want to become a forex trader? If you are brand new to forex, it might seem complicated. But actually, it is pretty simple to start trading.
In fact, technically all you have to do is open an account, make a deposit, and start trading.
But if that is all you do, you are guaranteed to bust.
Why? Because you cannot succeed at forex without a trading method, a money management plan, and sound trader psychology.
So, below we go over a simple plan with 12 steps to start trading forex.
If you follow these steps, you have a chance to not just become a trader, but to become a successful one.
We have made a video summary for you if you are more of a visual person.
1. Learn the basics.
First things first. You need to educate yourself about forex.
Forex can be a profitable career. But you would not launch a career in law, engineering, or medicine without training, would you? Forex is no different.
Read up all you can about forex. There are free resources online (including this blog), and books you can check out from the library or purchase as well. You also have the option of enrolling in trading courses.
2. Think about your budget for trading.
We suggest that you start thinking about your account size pretty early on in the process. Why? Because this is going to have an impact on your choice of broker, and potentially the trading method you choose as well.
You should trade only with money you can afford to lose. It takes time to become profitable. Try and figure out the total amount you can deposit, and what it might mean for your trade sizes (more on that later).
3. Choose a trading platform and a broker.
You are now going to need to look for a broker and a trading platform. Newbies sometimes mix these two up.
The broker is the company you are actually trading through. The trading platform is the software you use to do it.
Sometimes, you might use the broker’s proprietary trading platform. Other times, you might opt for a third-party platform.
4. Come up with a strategy for trading, or find one you like.
So far, so good, right? Now comes one of the harder steps, which is finding a trading system.
It may not sound difficult at first, because hundreds of people have shared their trading systems online.
But here is the thing—you need to find the system that is right for you. It will need to fit your bankroll, your trading schedule, and your personal strengths.
Once you find a system that seems promising, you can proceed to the step below.
5. Learn your strategy inside and out.
To make use effectively of any trading strategy, you need more than a casual understanding of it.
In fact, you are going to need to understand every aspect of how that strategy works and under what market conditions it can produce profitable results.
6. Backtest your strategy.
Once you feel you have a solid grasp of the fundamentals of the trading method, you will need to conduct backtests.
What is a backtest? It is a type of test where you go back over historical charts one candlestick at a time and place trades on paper, taking notes about whether those trades would have been winners or losers.
This is a great way to discover whether the system is viable and to keep increasing your expertise with it.
7. Open and verify your trading account.
To proceed to the next step, you will need to open a trading account if you haven’t yet.
It only takes a few minutes to do this. You already picked out a potential broker to use in step 3, so now you are just following through and creating an account.
You will need to provide some basic information to open your account. Make sure that all the information you provide is factual. The type of account you should open is a demo account.
At this point, you can proceed to the next step if you want, but we recommend that you also verify your account at this stage.
If you do not take care of it now, you will have to do it later.
Verifying your account is simply providing some requested documentation to your forex broker that proves you are the person you say you are.
Every broker has its own procedures for doing this, so you will need to look up how verification works for the site where you are going to be trading.
8. Demo-test your strategy.
Once you have completed a successful backtest, you have good reason to believe that the method should continue to produce results in the present.
But because that is not a guarantee, it is wise to do some demo testing before you start trading with real money.
Since you opened your trading account in the previous step, you have everything you need to get started with this.
To demo test your trading method, simply follow your charts each day, placing trades in your demo account.
Your demo account includes fake funds. So, you will be able to easily track how much money you would have won or lost had you placed the trades for real.
How long should you demo test? That depends on the system you are using, how frequently it has you placing trades, your results, and your overall confidence levels.
But suffice to say, you should not think about trading with real money until you have been profitably trading in your demo account.
In many cases, several months of testing will be necessary before you can press on to live trading.
We should note that there are actually two major reasons to demo trade.
The first is the obvious one, and that is to test your strategy.
But the second is to get a feel of what it is like to actually trade in real-time. Until you try it, you cannot be sure that you have chosen a strategy that will fit your real-life schedule.
You might need to make adjustments to your schedule or to your system in order to make things work. And in some cases, you might realize that you actually need to trade a different method altogether.
Either way, it is best to take care of all of that when you do not have real money on the line.
9. Come up with a money management plan.
While you are demo testing—or even before you start—you will need to be coming up with a plan to manage your money.
Your trading method tells you when and how to enter and exit trades. But it does not tell you how much money to stake on each of them.
That is what your money management plan is for.
While there are multiple approaches you can take, we recommend you consider risking a flat percentage of your account on each of your trades.
We still see newbies risking 5% or 10% on each of their trades, thinking that constitutes a “small” amount.
But most professional forex traders wager closer to 2% of their accounts on each of their trades. That is a much wiser amount.
10. Create a detailed trading plan.
You have just a few more steps to go before you are ready to start trading forex with real money. Your next is to create a trading plan.
A trading plan is a bit like a business plan. It can be as comprehensive as you want it to be, and can include details like:
- Your money management plan.
- Your trading method, including your rules for entries and exits, how you will set your stop losses, and so on.
- How many trades you will allow yourself to open at a time.
- What currency pairs and other assets you will watch and trade.
- When you will watch the charts and place trades (i.e. what times of days and which days of the week).
- A checklist for placing trades.
- Guidelines for what you will do if you experience a major losing streak.
11. Make your deposit.
You now have a money management plan, a trading plan, and a method you have tested thoroughly. You are ready to trade for real!
It is now time to make your first deposit into your forex trading account. If the site you joined offers any promotions, be sure to claim them at this time.
You may want to fund your account with half of what you intend as your full bankroll in the beginning, just to be on the safe side as you transition into live trading.
Once you get used to trading live, you can increase the amount in your account and start trading at full capacity.
12. Place your first trade.
After you fund your account and the transfer completes, you will be ready to finally place your first trade!
It will work exactly the way it did when you were demo trading, except this time, you will be risking real money.
Even though it is the final step on this list, it is the first step you will take in your journey as a live trader!
Find Your First Forex Broker Now
Are you ready to embark on your forex adventure? Testing strategies and creating a trading plan can be time-consuming. That is why we decided we would save you some time when it comes to researching brokers.
Get a free $30 welcome bonus when you deposit $10 or more. Check it out with Roboforex Welcome Bonus. This is enough for you to kick-start your trading adventure. If you think that you do not have the $10 to invest, you can get a free $50 from XM no deposit bonus.
You are just minutes away from opening your account and placing your first demo trade or real trade. Good luck, and check in with us again soon for more forex tips.