Trading in foreign currency has been a viable business option for decades, almost since the emergence of cross boarder trade and currency exchange markets. The real fact is that this market was restricted from most of the wider public as brokers ran the floor while financial institutions were the main traders.
So far, the market is still being dominated by the large Investment banks and related institutions. The introduction of online trading interface that are easy to use and accessible to the wider public has brought millions across the world into the Foreign Exchange (FOREX) trading platform.
With the varying background of traders, ranging from Bankers and investment Managers handling portfolios in the Millions of dollars, to the stay at home mum trying to make an extra income from the financial speculative market. The new dynamic floor has brought the “Yes, I can!” Feeling of attainability.
In the developing south, millions who feel denied from the reward of their full potential have started trooping into the FOREX market. All around me I see consultancies and workshops offering training and mentorship for the bold hearted willing to stake their bet on a successful trading career. They make promises of as much as a 1000% margin in the first month of trading and even point out one or two clients ready to testify of the fortune they made trading within a relatively short period.
The crux of this write-up is focused towards the trading pattern beginners in the FOREX trade adopt without much understanding of the market environment they operate. A lot of the trading content focuses on:
• Use of Fundamentals (trading strategy based on latest news update relevant to market trade).
• Understanding the Technical (which deals with using statistical projections to predict trend patterns).
The fact worth mentioning is that majority of traders in developing economies have relatively small investments ranging from a few hundred dollars to a couple of thousands. Their tutoring and online trading platform have induced into their pattern of trading a predictable decision trend. This poses a high vulnerability, and I will state why.
The large banks, assets/portfolio managers and volume investors who operate in this same market have had track records spanning years or decades, or have so much invested in data collection and analysis on a scale that would rate to the efficiency of state intelligence gathering agencies. These traders work with advance customized software programs that are linked to the trading floors providing on-time indicators of margin prospects that can be harness within a slight shift in the market trend. They also have some of the fastest trading servers that give them an edge of entering a trade before anyone else. With their wealth of experience, expertise and assets, it is difficult they make the same mistake twice.
If you are a small time trader basing your trade on the news you receive from your bulletin, know this; that news may be stale by the time you get access to it. The market movers may have gotten wind of those information hours or even a few seconds before you, and that is more than enough to outflank you in any major trade.
Or imagine living in a nation with a relatively slow internet connection, consider the seconds lost while your trade order is being processed and what others across the world may have achieved in that window.
I do come across a lot of guys frustrated about their trading profile, they feel they are chasing shadows and feel more like being at the bottom of the food chain, while they watch some reap good money from their trade. Now if those making money are not just lucky as some are; using a gambler’s probability, then they are doing something right. What is it?
Trading FOREX involves developing a trading pattern that works for you, and you have to be bold enough to create one. If you chose scalping, you must be sure you try as many strategies as possible and stick to the one that works, if you decide to sit through a trade, make sure that your risk exposure does not take you beyond a given percentage. In all cases use a stop loss and take profit as you may not be able to guarantee your server connection or may fall victim to high shifts. The fact is you must work on you psyche to take losses and close trade, take a break, then go back in when different conditions are at play. Do not believe that the market will swing back and clear your losses even if it once worked for you. Remember the law of probability and be discipline.
But please if you are trading small, don’t stick to the fundamental as your main determinant.
Olukunle O. Ogundiran