Last updated on May 4th, 2023 at 08:44 am
If you conversant with the financial system or international trade you must have heard about people making money (or losses) from buying and selling of currencies.
For instance valuation difference between the US Dollar (USD) and Euro (EURO) or any other currency pairs could go either way depending on the side you take.
Table of Contents
They do this by looking at various factors that may influence local currencies and swiftly taking advantage of any misvaluations of currencies. They are called foreign exchange traders.
How large is a foreign exchange market?
The foreign exchange market is the world’s most traded and busiest market, according to forex.com, the fx market has at least a turnover of $7.5 trillion in every 24 hours.
FX is traded 24 hours a day, 7 days a week, 365 days a year. It’s nonstop trading and there is no centralized marketplace for forex, unlike other financial markets.
Who Is a Foreign Exchange Trader?
A foreign exchange trader also known as a forex trader buys and sells foreign currencies to make a profit.
For instance, a FX trader may take advantage of the inconsistency in the economic policies of a country to make gains.
Inconsistent economic policies mostly resort to a loss in the value of the currency of a country e.g. Nigerian naira.
Foreign exchange traders in a country like Nigeria would take advantage of such a situation, buying currencies like the UK’s Pounds Sterling, EURO, and US dollars and selling at a high rate at the FX market when they gain against the naira.
Financial watchers have seen how the naira slid from NGN199 to NGN460 against the USD between 2015 to 2023 at the official rate; NGN/USD is above NGN700/USD at the parallel market at the time of publication.
Why the effect of this may be felt by the average person due to inflation – especially for a consuming economy – FX traders smile at the bank.
FX traders keep their eye on the misvaluations of currency pairs for their own benefit. Sometimes, they miscalculate which could lead to losses.
Qualities of a foreign exchange trader
While this FX trading may be profitable, there are some exceptional attributes a foreign exchange trader must possess to be able to cope with the ups and downs of the business.
FX trading isn’t for the faint-hearted. You could make millions from currency pairs within minutes or go bankrupt within seconds.
You must be a risk-taker. You must be able to swallow the outcome of the decision you take as an FX trader and learn from it.
Even a risk-taker, you must ensure that risk is calculated, not just out of emotions. So, you must be able to recognize risk when you see one and take measures to mitigate them to minimize losses.
Trading foreign currencies isn’t based on emotions. FX traders closely follow the currency market, paying attention to price fluctuations in currency pairs.
You must research some of the factors that may affect the value of a base currency and a quote currency.
You must be able to keep a record of positions, profit, and losses through the trading hours and pay attention to signals that influence valuations
Abreast of events
What are the events that could result in price fluctuations between base and quote currencies? Are they economical, social or political or all together?
In recent times, Brazil, Russia, China, and South Africa also known as BRICS are taking moves to dump the US Dollar as an international currency for trade.
They are also proposing to have a unified BRICS currency in place of USD, this may affect the value of the USD which has dominated the global market for decades.
One of the qualities of a forex trader is to closely monitor political or economic policies that have a significant effect on the currency pairs he trades in.
You must be able to analyze data – past data that affected a quote or base currency. An FX trader must have a sharp analytical mind.
The desire to make money requires some level of financial skills. FX traders must have strong math skills, spot differences in currency pairs and swiftly exploit them for profits.
You must not be rigid. The trading decisions you took yesterday might not work in today’s trading, so you must be flexible.
Work under pressure
Trading hours come with lots of pressure, a good currency trader must be able to handle them without making costly mistakes.
If you are always looking at possible losses, it might be difficult for you to take action when it is most needed. So, foreign exchange trading isn’t for the timid.
Where do forex traders work?
They can work in the following places:
- investment unit of financial institutions
- Specialized investment firm
- Brokerage company
- Private trading firm etc
How can I become a foreign exchange trader?
You can learn the intricacies of the FX market regardless of your qualifications, but it might cost you some losses.
A degree in economics, business math, statistics or other analytical-related science courses will be an advantage.
You can also enroll in a diploma course to learn about foreign exchange trading on e-Learning platforms such as Alison, edX, Coursera, Academic Earth, Udacity, LinkedIn Learning, and Udemy etc.
You can also make forex.com your partner if you want to have more knowledge about FX market.
To become a successful forex trader, it is better to specifically pick a ‘niche’, better still focus on groups of geographically related countries, such as those who trade West African currencies against the USD, GBP, EUR, CAD, or AUD.
How can I make a profit from trading foreign currencies?
1) You can receive bonuses based on the success of your transactions if you’re an employee of a financial institution. This is apart from your base salary.
2) You will make money accrue from the commission if you work as a forex broker.
3) If you make a sale of currency pairs that result in profit, that’s a plus to the purse.
A foreign exchange trader should not be seen as someone who makes a profit 24/7 or 365 days a year, they blend profit and losses, but they try as much as possible to mitigate losses from currency pairs.