Learn How Bank Forex Trading Works

For the longest time, banks have ruled the Forex market along with major financial institutions. They’ve used it in the past to generate great returns on their money in short periods of time. It was only recently that smaller investors began to catch on to the profitability of trading forex. With the barriers to entry the lowest they’ve ever been, no longer are just the bank forex trading moguls dominating the forex market, smaller investors are jumping on the forex bandwagon seeking those big wins.

However, in order to start profiting from forex, it’s important to understand the difference between investing and day-trading. You see, a lot of people believe that Forex is volatile and it is. However, the critical difference between trading forex and day trading on the stock market for example is that Forex is a long-term investment vehicle.

You sometimes hear about the day traders ultimate goal of trading 1,000 shares or even more on the major stock markets, and seeing a huge profit within one day. They’re often exploiting the small intra-day price fluctuation that occurs every day, without fail. Their intent to hold onto stocks overnight is usually never a goal; they hold stocks sometimes as short as a few minutes. However, as forex traders, our intent is long-term and the idea is to profit from the difference in appreciation values of one currency compared to another.

Now, while investing is long term, there are still many opportunities on a daily basis to make profits from Forex. Banks are able to consistently make calculated risks and invest in currency pairs in the millions of dollars a day. While you don’t have the luxury of profiting from the weight of having millions, you do have the option of using a brokers leverage to simulate having more money in your account.

What you’ll want to do is start using a trading system, and combine that with a broker. Aside from the backtests you should be conducting on a demo account, you’ll begin to see when your trades are most profitable. Ideally, you might be getting in and out of the market on a daily basis, similarly to day trading, with the critical difference being that you’re predicting one pair will go up in value against the other one.

Once you’ve decided on a trading system and broker, the next thing you want to be sure to be using is a stop-loss. Most beginner traders underestimate the importance of a stop-loss for protecting their initial investment nest, and thus, can lose their seed money quickly. The objective with Forex isn’t to make a huge profit from one particular trade, such as buying Microsoft when it was in IPO phase. The key is that you’ll be consistently buying and selling currencies, so that you diversify your risk.

Ask any professional forex trader, and they’ll tell you how much less stressful forex trading is versus day trading stocks. Your aim then, should be to learn as much as you can about the forex market, invest in your education and realize that trading has a lot more to do with discipline, patience, and choosing and sticking with a trading system than most beginner traders are willing to admit.

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