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A foreign exchange or forex trader is a type of investor that focuses his or her portfolio on the foreign currency exchange market. By closely following the currency market and making opportune trades, a foreign exchange trader has the opportunity to make a profit based on shifting currency rates. Often, a foreign exchange trader will be self-employed, or do trading as a means of creating supplemental income. Skilled forex traders may also be hired by investment firms or brokerages as experts.
The exciting world of foreign currency exchange is attractive to many people who wish to become day traders, or those who want hands-on involvement in their investments. Rather than placing precious savings into the stock market or slow-maturing bonds, a foreign exchange trader uses the day-to-day shifts in currency value to make a profit. To earn money consistently, a foreign exchange trader needs to rely on knowledge of the market, a keen understanding of trading software and brokerages, and a little luck.
A future foreign exchange trader will spend many months or years learning about the market before beginning a trading career. This education may include attending seminars or reading books about the market, studying market patterns and common indicators in order to be able to recognize patterns that can lead to great trades, and learning about brokerages and online forex websites that allow real-time market tracking and trading. After learning the theoretical information, many also participate in market simulator experiments, which allow traders to test out trading strategies using the real market, but not using real funds.
Once a day trader opens a live account, he or she can begin to make live trades for a profit. To make a trade, a trader uses his or her knowledge of the market to identify a pair of currencies to work with, such as Euros against the US dollar (USD). If the trader finds a market indicator, such as the release of an exceptionally good economic report by experts, that suggests that the currency value of the Euro will jump soon, her or she might sell 500 USD for 500 Euros. If the Euro currency value doubles against the USD, the trader can then trade the increased-value 500 Euros back for 1000 USD, leaving him or her with double the dollars from the initial trade. Often, to make a significant profit, a trader will deal in much larger sums.
In some cases, a foreign exchange trader may choose to leave the world of day trading for a job in the financial industry. The special skills gained from successful forex trading may help a trader qualify for a job as a broker or investment manager that specializes in the foreign exchange market. Other qualifications, including college degrees and work experience, can better prepare a trader for working in this branch of the market.