How to Become a Currency Broker.
People worldwide buy and sell currencies in the foreign exchange market. According to Nasdaq, the daily trading volume exceeds $5 trillion . That's four times the global GDP. If you find this market appealing and have certain skills, you could become a foreign exchange trader.
How the Forex Market Works.
Whenever you travel to another country, you have to exchange the money you have into the local currency. Let's say you're an American visiting Italy and you need to exchange $500 to Euros. When you return home, you notice that you still have some Euros left, so you head over to a currency exchange booth to trade them for US dollars. To your surprise, the cashier gives you more money than you expected.
This is a basic example of how the foreign exchange market works. Every time you exchange money into a different currency, you're participating in the Forex market. Millions of people trade currencies for a living or as a hobby. Some employ currency brokers to handle these transactions on their behalf.
Forex or the foreign exchange market is the world's largest and most liquid market. Basically, it's the place where all currencies are traded. Seven major currency pairs — including EUR/USD, GDP/USD, USD/JPY and USD/CAD — account for more than 85 percent of all transactions. The remaining 15 percent consists of exotic currency pairs and minor pairs .
What Is a Forex Broker?
If you want become a foreign exchange trader , it's important to research and compare Forex brokers. These are companies that provide access to a trading platform where you can sell and buy currencies. They have credit lines and access to Forex liquidity at several banks and operate as middlemen between traders and the market.
Forex brokers charge a commission for each transaction. These fees vary from one broker to another and are referred to as the cost of trading. Some brokers charge a spread on trades, which represents the difference between the buying or bidding price and the asking price for a given currency pair.
Modern technology has allowed brokers to provide their clients with access to electronic trading platforms. In this digital era, anyone can start buying and selling currencies within minutes. Not all brokers are created equal, though; each has different rules, practices and commissions. Depending on their needs, traders can sign up with Saxo Bank, eToro, FxPro, Dukascopy Bank, Forex.com and other industry leading FX brokers.
Currency Trading Explained.
Whether you want to become a currency broker or a Forex trader, you need to understand how this business model works. In both cases, it's important that you become familiar with Forex trading requirements and industry practices. From finding the right pairs to trade to deciding whether to buy or sell, every detail matters.
First of all, research the different currencies and their performance over time. Major currency pairs are those with the highest turnover and include:
Euro/US Dollar (EUR/USD). New Zealand Dollar/US Dollar (NZD/USD). US Dollar/Canadian Dollar (USD/CAD). UK Pound/US Dollar (GBP/USD). US Dollar/Swiss Franc (USD/CHF). US Dollar/Japanese Yen ( USD/JPY). Australian Dollar/US Dollar (AUD/USD).
Traders can also opt for minor currency pairs that don't include the US dollar , such as EUR/JPY, EUR/CAD, GBP/CAD and AUD/JPY , as well as exotic currency pairs like U SD/SEK, USD/SGD and USD/DKK . The US Dollar accounts for 87 percent of the total trading volume, while the Euro represents only 33.4 percent. As a trader, you can make money from changes in the exchange rate as well as from the difference in interest rates of two different currencies.
Forex Trading Requirements.
With some practice, anyone can become a foreign exchange trader. However, only a few have the mindset and skills necessary to succeed. This career path doesn't require any specialized degree , but you do need to educate yourself and learn everything you can about currency trading. It's essential that you know how to read price charts and trading signals, conduct a fundamental analysis, assess the potential risks and rewards and manage your money.
Unlike other business models, Forex trading only requires a small initial deposit. In theory, you can start trading with as little as $100, as there is no legal minimum . A good option for beginners is to sign up for a demo trading account and practice their skills.
Experts recommend that traders follow the one-percent risk rule , which states that you should never risk more than 1 percent of your money on a single trade . This means that if you have $1000 in your account, you shouldn't risk more than $100 . Even though such a small investment won't get you too far, it's a good start. As you gain experience, you can add more money to your account and experiment with new trading strategies.
Job Requirements and Qualifications.
Whether you decide to become a foreign exchange trader or a broker, you have two options: work on your own or join a brokerage firm . Most companies that employ currency brokers and traders prefer candidates with a Bachelor's degree in finance, business or economics and experience in selling financial products.
You will be responsible for opening and closing new leads, dealing with investors in person and over the phone, contacting prospects and nurturing existing clients. Having excellent communication and interpersonal skills is a must. Aspiring brokers and traders also need an analytical mindset as well as a confident and engaging personality. Other requirements and desirable skills may include:
Physical and mental stamina. Ability to make quick decisions. Passion for financial markets. Excellent numeracy and math skills. Self-confidence. Ability to work under pressure. Comprehensive knowledge of the financial markets. Problem-solving s kills. Risk management skills. Customer service skills. Good understanding of domestic and foreign currency exchange rates. An eye for detail.
Most companies provide ongoing training to help new hires gain a better understanding of financial markets. They expect employees to recommend competitive foreign exchange rates to their clients, build report and develop relationships with customers, speak confidently to C-level clients and maintain accurate records. Currency brokers may also be required to cross sell products and services, make cold calls and generate leads via multiple sources. Previous telesales experience can give you a competitive advantage in the job market.
Licenses and Certifications.
Each country has its own regulations for currency brokers. In the U.S., this activity is regulated by the National Futures Association (NFA) . The organization provides licenses to introducing brokers, retail foreign exchange dealers, floor brokers and traders, associated persons, swap dealers, commodity trading advisors and other professionals. It also features an online system that allows users to check the status of individual brokers and brokerage firms.
Forex brokers and traders don't have to be certificated to find a job. However, completing a certification program can increase your chances of success and teach you the skills needed to work in this industry. The International Federation of Technical Analysts (IFTA) , for example, offers courses in financial technical analysis. Students learn how to make forecasts, analyze financial instruments, assess the current market situation and more.
Aspiring currency brokers can also enroll in the CMT Program , which tackles technical analysis. These courses provide comprehensive information on risk management, portfolio management, quantitative financial research, behavioral economics and other key aspects. After completing the program, you'll have the skills and knowledge to trade stocks, futures, bonds and other financial instruments — not just currencies.
How Much Can You Earn?
The average Forex trader salary in the U.S. is $78,162 per year, plus bonuses and commissions of $20,226 and more. Experienced traders can earn as much as $180,000 annually. Entry level jobs, though, only pay around $33,276 per year.
As a foreign exchange broker , you can expect to earn around $75,000 per year on average. Most brokerage firms offer bonuses and commissions too. Your salary will depend on how much experience you have and your overall performance.
One option to consider is to start your own Forex brokerage firm . This will increase your income potential and open up a world of opportunities, but it also requires more time and effort. In general, those who choose this career path have years of experience in Forex trading. They know their charts and tools inside out, have a high risk tolerance and fully understand this market and its unique characteristics.
Why Trade Foreign Exchange?
The foreign exchange market has distinctive characteristics that make it appealing to brokers and investors alike. First of all, it's open around the clock because there is no central exchange; all transactions are completely directly between parties. It also carries low transaction costs due to its high liquidity.
Additionally, the large number of transactions taking place every day translates into more opportunities for traders. Since you're never "stuck" in a trade, you can make money whichever way the market goes.
Let’s say you decide on trading USD/CAD, with USD being the base currency. If you forecast that the US dollar will increase in value against the Canadian dollar, you can go long (buy the pair). If you think that the US dollar will decrease, you can go short (sell). Your ability to win or lose depends on how accurate your prediction is. Experienced traders use live Forex charts , candlestick patterns and other tools to make predictions and decide whether to buy or sell.
Disadvantages of Forex Trading.
Forex trading isn't for everyone and carries high risks . Some currencies are extremely volatile, meaning that they often display high price swings . Their value can go up or down anytime, which is why you should never risk more than you can afford to lose. Keep an eye on price fluctuations and consider the factors that affect this market, such as changes in the economy and global politics.
The low entry barrier is a double-edged sword. On one hand, it allows aspiring traders to easily enter the foreign exchange market and build their way to success. On the other hand, inexperienced traders end up losing thousands of dollars because they start out with limited knowledge, give in to greed or take unnecessary risks. If you're new to Forex trading, use a demo account to hone your skills and test different strategies with play money.
Consider the fact that you're entering an international market with no centralized exchange. Therefore, its regulation is limited. Even though governmental bodies worldwide supervise this market, their efforts are not always coordinated. Approximately 96 percent of people who start trading quit soon after because they lose money.
Is Currency Trading Worth It?
Like everything else, Forex trading comes with its challenges. If your goal is to become a foreign exchange trader or broker, start with small steps. Consider applying for an internship at a brokerage firm , use a demo account to practice your skills and take calculated risks.
Don't fall for the so-called Forex trading bots and systems that guarantee a successful outcome. No one can accurately predict where the market is going. Assess the potential risks and rewards, consider your risk tolerance and determine whether or not this business model is a good fit for you.