How to Become a Forex Trader

There are three different ways through which you can become a forex trader. You can trade your own money, leverage your money through proprietary trading firms, or you can go work for an institutional money manager and work in trading other investors’ money.

Going It Alone
One of the most common methods for becoming a forex trader is to trade your own money with your own equipment and with your own strategies, often in your own home. Going it alone has many advantages in that you’re not held down by a daily schedule, and free to trade your own money as you see fit, since any loss comes out of your own pile of cash.

Unfortunately, going it alone is one of the worst ways to jump into making a living with forex. In fact, most people who enter the forex market end up losing significant amounts of money anyway, but those who enter the market without the support of a firm rarely have the resources or time to invest in understanding the market. However, that said, many other investors find that going it alone means they can invest after working a forty-hour workweek for someone else, and trade after market closing times in the United States.

Proprietary Trading Desks
Proprietary firms, or prop firms, are those in which the company hires new members to invest their own capital after learning how to trade the markets using a “proprietary” trading system or technique owned by the firm. This method for becoming a forex trader has benefits in that you’ll learn how to trade profitably and be enabled to trade with far more than your own finances could allow you to trade.

Often, those who successfully pass the entrance tests and interview rounds are given accounts with as much as $10 million in buying power. The applicant will then put up a small amount of his or her own money so as to show the firm that he is as invested into the concept as the firm is. Generally, profits on the larger amount of money are returned on commission to the trader. Traders have downside risk in that there isn’t much to lose in the firm putting up much of the starting amount. However, traders do have risk in that poor performance is sure to cut any trader’s time on the markets short. Having provided poor returns, the prospect for future hiring as a trader is very limited.

Money Managers
Forex traders often work for money managers, where they use their own insight and knowledge to produce profits for a firm. The firm they work for often solicits investor capital from high net worth individuals before allocating it among the many forex traders who work at the firm. The idea here is that each trader is allowed to trade how they see fit, using their own techniques and knowledge, and the firm’s risk management professionals help decide how investment dollars are spread among the trading talent.

It is not unheard of for forex traders to make millions of dollars per year working in direct relationship with money managers who raise capital on their behalf. These trading jobs are the best one can find, and often require years of experience and a solid track record in consistent, market-beating returns before being hired. You can reasonably expect to receive an annual salary in the low six-figures with an annual bonus equal to a share of the returns over and beyond the benchmark performance. One very successful trader is George Soros, who used some of his companies own funds to make more than $1 billion in a series of forex trades.

Related Information