Did you know that FX trading was limited to big financial institutions and companies till the late 1990s? Today, this dynamic landscape, which is also the most liquid financial market in the world, is home to diverse FX traders globally, with different experience levels and objectives. Rapidly evolving trading technology has brought the forex market within reach of everyday people allowing us to trade and monitor the markets from multiple devices on the go.
The forex market is impacted by every little development across the world. From pandemics to electing new presidents, currency prices fluctuate based on multiple factors. This healthy volatility provides multiple trading opportunities and also makes following the news a lot more fun. No more doom scrolling on Twitter. Now you’re monitoring market moving news and upcoming opportunities.
Let’s look at some interesting things about the FX market that you might not know.
IT ISN’T ALWAYS THE GREENBACK TO THE RESCUE
The US dollar is the world’s reserve currency. The daily turnover in the forex markets reached a whopping $6.6 trillion in 2019, with the US dollar accounting for 88% of all global trades, says the Bank of International Settlements (BIS). Major commodities worldwide are priced in the US dollar, and major currency pairs contain the greenback either as a base or quote currency.
But, to become successful in the long term, you could also choose to trade in non-USD pairs. Many pairs, like the EUR/GBP, EUR/CHF, and EUR/JPY, can provide good trading opportunities too, while allowing you to diversify away from the USD.
For example, the EUR/GBP pair is an interesting one, driven by the complex and deep trade relations between the European Union and the United Kingdom. Key economic releases including interest rate decisions by the European Central Bank (ECB) and the Bank of England (BoE) can provide trading opportunities. With ongoing post-Brexit developments, this pair is one of the forex assets to watch out for. So, you can consider a non-USD pair for:
- Portfolio diversification
- Expected decline in the USD, due to global economic recovery
Fun Fact: The US dollar can never feature a living American president. This is because unlike the UK, which is a constitutional monarchy, the US is a representative democracy.
SOME FOREX TRADERS’ NAMES ARE ETCHED IN HISTORY
Out of the millions of traders worldwide, there are some who became superheroes of the fx market. These traders have spent a lifetime gathering knowledge about the market and used their carefully cultivated strategies to not just survive challenges and market downturns but to thrive in adversity. They have been known to increase their companies’ earnings manifold. Some notable names are:
- George Soros: One of the 200 wealthiest people in the world, George Soros shorted $10 billion worth of pound sterling in 1992, making a profit of $1 billion after the UK withdrew the pound from the European Exchange Rate Mechanism.
- Andy Krieger: While working for the Bankers Trust in 1987, Andy Krieger profited from the October “Black Monday” crash by short selling the New Zealand Dollar (NZD). He garnered $300 million in profits for his company.
- Bill Lipschutz: Bill was the principal trader of the forex division of Salomon Brothers, and was earning $300 million per year for the company by 1985.
Fun Fact: George Soros is also known as the “Man Who Broke the Bank of England.”
EVEN GEORGE SOROS FACED LOSSES
One of the most basic questions after “how to become a forex trader” is “how to avoid losing a trade.” All traders have losing trades, regardless of their experience levels. But, what’s important is your strategy. To get back on your feet and learn from your losses. Here are some things to avoid after a losing trade:
STOP TRADING COMPLETELY
If you fall off a horse, they tell you to get back on again right? Losing trades shouldn’t stop you from making further trades, unless your system tells you otherwise. If you are not in the right mental state, consider reducing your risk capital or taking a learning break.
ASSUME YOU MADE A WRONG CALCULATION ON MARKET DIRECTION
It’s intuitive to assume that if you were stopped out in a long position, the price is more bearish than expected or vice versa. Just because you were stopped out doesn’t mean you were wrong about the market direction. You could have made a mistake in placing the stop-loss or simply had bad luck. Bad luck happens to the best of us.
TELL YOURSELF THAT YOU NEED TO MAKE IT ALL BACK
The most tempting thing to do after losing a trade is to go back seeking to avenge your losses. You’re not a bond villain so let that go! Consider a complete market re-assessment starting afresh the next day.
Fun Fact: The win/loss ratio is used by many traders to evaluate their daily trading performance. It is used with the win rate to determine the success probability of a trader. A win rate above 50% or a win/loss ratio above 1.0 is generally considered ideal.
TIME COUNTS IN THE MARKET THAT NEVER SLEEPS
You could be a short-term, medium-term, or long-term FX trader. The best chart timeframes vary for everyone. Based on your risk profile and trading experience, your strategy will differ, which will then determine your timeframe. So, if you’re a day trader, you will need to close positions before the day ends. The timeframes for day traders can vary between minutes to several hours. On the other hand, a scalper enters and exits multiple positions throughout the day. For a scalping strategy, chart timeframes can range from 1-minute to 5-minute forex charts. In case you’re wondering, a scalper in the investment world is a term used to denote the “skimming” of small profits on a regular basis, by going in and out of positions several times per day.
Swing trading is an intermediate trading strategy, capturing price swing lows and highs. This strategy might include forex charts of a few days to weeks. New to trading? 360 Capital can help you with tutorials, one on one demos and support!
THE BIGGEST ECONOMIC DATA AMONG ALL
The US Non-Farm Payroll (NFP), released on the first Friday of every month, is one of the most-watched and interpreted economic releases for FX traders. If you’re new to trading, you might be wondering what farms have to do with markets. The Non-Farm Payroll is literally the jobs data from all US sectors except farming. Apart from the obvious reasons, like the US being the biggest economy in the world and the status of the US dollar as the world’s reserve currency, there are many other reasons why the NFP is important.
For starters, inflation is a major factor that drives currency values. When the US NFP report indicates strong jobs growth and a healthy economy, there is always a concern of the economy getting overheated. This means that people have higher purchasing power, which leads to greater demand for goods and services within an economy. This creates inflationary pressures, which the central bank (in this case, the US Federal Reserve) needs to control to bring economic stability.
The Federal Funds Rate is one of the most important terms you will counter in FX trading. The US Fed raises its Federal Funds Rate when inflation rises and vice versa. A higher rate leads to appreciation in the US dollar, while a lower rate can lead FX traders to ditch the dollar for risky currencies in the emerging markets, like the Mexican Peso or Chinese Yuan.
There’s so much to learn about the forex markets but that’s part of the fun. Stay connected with our social media channels and blog for more news, education, fun facts and updates. Got a question about a forex topic? Ask us, we’re here to help.