By Jonathan Dayan – These days it’s easier than ever before to become a financial trader. Thanks to the internet there are literally hundreds of trading platforms offering financial trading online.
If it’s easy to start trading for yourself it can also be quite confusing. It is for this reason that many people who give online financial trading a try don’t end up sticking with it. In this article I’ve broken down the process of starting out as a financial trader into a few easy to follow steps which should help first time traders navigate their way through the process of starting out.
Step 1: Choose the right platform for you
As a beginner it’s important to find a trading platform that will offer you good customer service, a practice trading account, trading tools and market tips, and community trading features. There are too many trading platforms out there to list but it’s worth pointing out that few of them actually meet all these requirements. A number of blog sites will offer you more or less impartial reviews of the various financial trading platforms, enabling you to compare different platforms feature by feature. Before you even go to the reviews, however, be clear about the features that matter most to you. Personally I think that a free practice trading account based on live market rates is an absolutely vital criteria for choosing a trading platform – many traders are very reluctant to ever deposit funds with a trading platform that doesn’t offer the opportunity to try the platform out first, for free, and I agree completely. Ultimately, though, the most important features of a platform are its usability and its reliability in handling deposits and withdrawals. Based on all these features and on its ease of use in particular, I’d recommend eToro above other platforms to first time traders because it’s the platform which best meets these key needs of the beginner trader.
Step 2: Start practicing
There is no better way to get started as a trader than to actually open some trades for yourself. When you do so with a practice account you avoid the risk that you’ll lose money when you’re still stuck learning the basics. Practice trading is in my view the single most important activity for the beginning trader. Through practice you can get to know the inner workings of the trading platform which you’ll be using as well as the assets which you plan to start trading. Each asset is different. Each has its own unique nuances which can only be learnt by actual trading. When practice trading it’s important to try to model your trading as much as possible on the actual scenarios you’re likely to see when you make the switch to trading for real. That means that if you’re planning to trade real funds of a few hundred dollars then making practice trades on accounts of $20,000 won’t prove all that helpful for you. Trade the assets you’re likely to want to trade for real at the time that’s likely to prove most convenient – note that assets trade differently depending on the time of day as the volume of trade in the market rises and falls.
Remember: practice is important. Don’t cut corners, or let your excitement to get started cause you to pass over this vital step.
Step 3: Do your homework
To succeed as a financial trader you’re going to need at least a basic understanding of the principles upon which the financial markets operate, and unfortunately that means homework. This is quite an unpopular step for many people, who are deterred at the thought of the hours of complicated reading which are required before they can get past this hurdle. It doesn’t need to be that way. Not only are there a lot of engaging and even entertaining ways for you to learn the basics of trading out there, it’s also a project which you should try to space out through time, rather than trying to cover it all in one go. The level of financial knowledge you’ll need when you start out trading is quite different to what will suffice 6 months down the line, when you’re doing large volume trades in higher risk configurations. Be modest in your learning aspirations, particularly when you start out trading. Make sure to cover the basics early: understanding the principles of trading – e.g. knowing ask from bid, long from short, dollars from euros etc- and leverage, which is the concept which causes most first time traders to founder. Beyond this point I think it’s better to see the learning process as a continuing on-the-job activity which you’ll get to a little each week.
Step 4: Start small
When you’re ready to start trading for real, try to do so, in the first instance, by trading small amounts of money which you can afford to risk. When you start out you’re trying to master the dynamics of trading not to make your fortune on your very first trades. First determine how much money you’re willing to risk in your learning phase. If the answer is $200 then try to make sure that you actually get some use out of that money. Don’t take the entire amount and put it all on just a single trade with sky high leverage and in effect limited chance of success. The money you’re using early on is a test budget so treat it accordingly. Try trading the assets which most interest you and use the leverage level you feel comfortable with, although a good tip at this point is to keep your leverage as low as you can. For this reason make trades at the lowest lot sizes possible – that way you can keep both the margin you invest and the leverage you trade with as low as possible. Experiment in trading style when you’re starting out. Don’t just trade the euro/dollar and nothing else and trade both sides of the market (long and short) that way you’ll learn more quickly what style suits you best. If you’re trading through a social trading network like the eToro OpenBook then use this practice phase to shadow multiple traders in order to find the trader whose style best fits your trading goals. Not every trade you make will wind up a success but that really isn’t the point. You’re trying to find the approach that suits you best and you’re going to have to experiment a little if you’re ever going to find it.
These are my initial four steps to financial trading. Of course there’s a lot more that could be said on this topic, none of which, however, is worth half as much as registering for a practice account yourself and actually starting to give trading a try.
Forex Market Analysis provided by eToro
Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don’t trade with money you can’t afford to lose.
