Author: adrankone

Forex is one of the largest, oldest and most liquid of financial markets to trade in, and part of the appeal of an instant funding prop firm is that anyone with the skills or discipline can get the capital they need to take full advantage.

That history is itself somewhat fascinating given that forex is such a fast-paced and constantly changing market that it feels far newer than it actually is.

For as long as there has been a concept of money as a store of value, there has been a foreign exchange market, but the beginning and evolution of forex is a tale of three acts based around three fundamental concepts and transitory periods.

Medium, Measure, Standard, Store

Money has existed for as long as there have been distinct civilisations and thus the need to trade goods and services beyond the confines of even a broad definition of barter (which incorporates gifts and debt).

A barter system only works if two people have exactly what other people want, so in order to send something to one person and receive something from another without either trade simply being gifts, a system of currency was established.

Most currencies work on a set of four (later three) functions described by William Stanley Jevons:

• Medium of exchange
• Common measure of value (or unit of account)
• Standard of value (or deferred payment)
• Store of value

Standard of value is assumed to be part of the other three functions of money, but every type of money attempts to fulfil these functions in one form or another, and this has been true for as long as there have been communities larger than small hunter-gatherer communes.

The foreign exchange market began with money changers, who existed to ensure people who travelled from one country or region to another could convert money in exchange for a fee or commission.

This was made possible because nearly every civilisation of this period used silver as their standard currency, beginning with the Mesopotamian shekel, which was widely used throughout the ancient world.

In practice, this was closer to a bureau de change than the forex trading market traders would engage with, but every early civilisation with a standard currency had a money-changing industry and this would continue to be the case until the 19th century and a paradigm shift took place that enabled the start of the modern forex industry.

The Gold Standard

There were existing forex markets before the establishment of the gold standard, but they tended to rely on the physical value of the precious metals used to mint the coins themselves.

As trade became more international, this became more complex and impractical, particularly when trading currencies internationally; shipping huge amounts of silver coins was difficult and potentially dangerous in an age of pirates.

The solution to this, first established in Britain in 1821 and in most of the economic world by 1880, was the gold standard, an economic unit that allowed a currency to be freely exchanged for a fixed amount of gold. This was made possible thanks to the gold rush which greatly expanded the amount of gold available for economic purposes.

The international monetary system relied on the gold standard, and this allowed for the creation of forex as we know it, with early traders such as Alex. Brown & Sons and J.M. do Espirito Santo de Silva (later Banco Espirito Santo) beginning operations as a result.

The gold standard continued until the First World War, which led to the adoption of exchange controls which broke the fundamental principle of convertibility. 

Whilst attempts were made to restore the system following the Treaty of Versailles, the system died completely with the Great Depression. The depletion of resources and gold supplies following the war meant that many countries directly involved struggled to return to it until the late 1920s.

The Rise And Fall of Bretton Woods

In 1944, with the end of the Second World War close at hand and a desire to rebuild the international economy ravaged by conflict and chaos, the Bretton Woods system aimed to restore the principles of the gold standard but without the inflexibility that led to its suspension.

It essentially used the United States dollar as a central medium of exchange, which could itself be converted to gold at a rate of $35 per troy ounce. In exchange for this reliability, currency rates were fixed to within one per cent. This agreement also led to the creation of the International Monetary Fund (IMF).

However, this system also proved inflexible, having placed the dollar in a position where it could not guarantee its fixed-price convertibility into gold.

On 15th August 1971, then-President Richard Nixon announced that the dollar would no longer be convertible into gold, ending the gold standard and establishing the modern foreign exchange market as we know it today by 1973.

By 1982, currency pairs were available to be bought and sold.

The two most important parts of forex trading are entering the market and exiting it, and taking a disciplined approach is key to success when applying for an instant funding prop firm.

Successful trading is about playing the long game, managing and observing the market, employing strong risk management fundamentals and avoiding taking huge risks without justification.

All of these traits were found in one of the greatest forex traders of all time, but what is just as fascinating and educational about his career are the reasons why he left the market and his much less successful career trading technology stocks before he left the Quantum Fund.

The Man Behind The Man Who Broke The Bank Of England

One of the most pivotal forex trades in history is the shorting of the British Pound on Black Wednesday 1992. This event arguably changed the course of British politics with repercussions still felt today, and made George Soros’ Quantum Fund a billion dollars.

However, what is less well known is the importance of Stanley Druckenmiller, George Soros’ right-hand man, who was the person who spotted the potential weakness of the British economy within the European Exchange Rate Mechanism that made a short play so effective and lucrative in the first place.

After relaying this to Mr Soros, he encouraged Mr Druckenmiller to take a huge short position worth as much as $15m. Quantum’s position was worth the entire size of the fund, and had the pound rallied it would have ruined everyone involved. 

Mr Soros was described as the man who “broke” the Bank of England as a direct result of this, but Mr Druckenmiller’s contribution was significant, and throughout the 1990s the pair would take part in several other major forex trades, not all of which were as successful.

Unfulfilled Prophecies

The belief amongst economists, including Paul Krugman, was that Quantum Fund was not only using their significant capital to profit from currency crises but was attempting to aggressively short currencies seen to be vulnerable in order to manifest more chaotic economic circumstances.

However, whilst making money on the pound in 1992, and the Thailand baht and Malaysian ringgit during the Asian currency crisis of 1997, neither Mr Druckenmiller nor Quantum Fund were untouchable.

He attempted to short the Japanese yen in 1994, two years after the end of the Bubble era and at the start of a deep Lost Decade in Japan.

However, Quantum had shorted the yen on the belief that the dollar would continue to gain against it, but when the yen had a one-day increase of five per cent, the fund lost $600m that same day.

In 1998, Russia defaulted on its debt and devalued the ruble, which cost Quantum another $2bn in various investments, although given the collapse of other firms such as Long-Term Capital Management, Mr Druckenmiller et al escaped relatively easily given that their overall assets 

were up nearly a fifth on the year.

However, the huge crisis and the earthquake it made to the financial world, combined with a failure to short the Hong Kong dollar out of its peg with the United States dollar the same way Quantum had successfully done with the pound and the European ERM, ultimately caused the hedge fund to largely exit forex.

Leaving His Speciality

Stanley Druckenmiller largely left forex at this point and ended up investing in technology stocks, taking advantage of the dot-com bubble at the time.

However, whilst his timing was excellent with the pound and his patience proved critical in making a profit on the unified Deutsche mark following the fall of the Berlin Wall, his timing in the technology sector was significantly worse.

His mistake was to be correct at the wrong time. His fundamental investment strategy is to “follow the puck” to where it is going rather than where it currently is, or to invest based on the medium-term future rather than its state in the present.

He decided to short internet stocks based on this philosophy but lost $600m as the overvalued companies continued to grow their stock prices. He eventually changed course on a short-term basis and made it all back and then some.

After choosing to sell in early 2000, he rejoined the market an hour after the peak, losing $3bn in less than six weeks, ultimately leaving Quantum in the process.

His biggest mistake was to apply his exceptional skills honed in forex to a very different market, and then succumb to fear of missing out once it did not work.

Whether you are just starting out on your forex journey or you are further down the line, there’s always more to learn. The opportunities to access funded trading accounts have never been wider, thanks to the rise of digital platforms. However, traders who invest in continuous learning and development are the ones most likely to succeed.

In order to qualify for and maintain your access to a funded account, you’ll need to prove that you are a consistently profitable trader over time. This takes more than market knowledge: you will need discipline, emotional awareness, and a well-honed trading mindset. Here’s how to improve your trading skills and maintain that competitive edge. 

Start with solid foundational knowledge

Good trading skills are built on solid foundations, so make sure you have mastered the basics. This will give you more confidence when making technical and strategic decisions, and prevent time wasting through looking up unfamiliar terms. 

If you are completely new to forex trading, it’s best to start with some background reading so you can understand how the market works and what influences price movements. You should also understand the meaning of key terminology such as pip, spread, leverage, margin and lot size. 

There are lots of different ways you can learn the basics of forex without spending too much: checking out the numerous free online courses is a good starting point. Avoid any that make inflated promises, such as earning a million bucks by the end of the year. If you are a complete beginner, this isn’t going to be a realistic goal. 

Forex trading skills take time and patience to build up, and there’s no such thing as overnight success. A good training course will be transparent about the risks as well as the potential benefits of forex trading, and teach you about the importance of building a solid trading plan and a good risk management strategy. 

Create or refine your trading plan

Once you feel comfortable with your level of knowledge, it’s time to put together a structured trading plan. Diving straight into the markets without a plan is no better than gambling, so this step is non-negotiable. If you already have some experience under your belt, it’s worth reviewing your strategy to see if there is room for improvement.

If you are aspiring to qualify for a funded account with a prop firm, then it’s best to check out their rules when you are developing your strategy. They will usually have clear guidelines about profit targets, maximum drawdowns, risk management and the use of stop loss orders, and so on. Use these as the basis for your plan.

If you are a new trader, don’t overwhelm yourself with an overly complicated strategy: simple and straightforward can work just as well. Be clear about your signals and timeframe for entry and exit criteria, how much you are willing to risk per trade. Position sizing should be adjusted based on your account balance and risk tolerance. 

Also consider the time of day you will be making your trades: the forex markets operate almost 24/7, but liquidity is higher at certain times, such as the crossover between the closing of the New York trading day and the opening of the London one.

It may be that you are restricted by having to trade around a full-time job or other commitments, or you just feel sharper and more energetic at certain times of the day. Consider these factors when choosing between currency pairs, and whether to follow a short, medium or long term strategy.

Backtest and forward test your strategy

Before launching your strategy on the live markets, it’s crucial to roadtest it to see how it performs. Backtesting means running your strategy on historical data to see how it would have performed: there are various apps and tools that can allow you to do this.

Forward testing means applying your strategy in simulated live market conditions, such as a demo account. This will allow you to see results in real time. For a true test not just of your strategy, but also about how you perform psychologically in a real trading set up, complete a 14 day free trial with a prop firm. 

This will give you access to a leading-edge trading platform so you can familiarise yourself with the dashboard, and the opportunity to trade in live conditions without risking real money. Track your results, but look beyond the number of winning trades. Analyse the risk-to-reward ratios, and the consistency of performance across market conditions.

Keep a trading journal

One of the best ways to take your trading skills to the next level is very simple: keep track of your trades in a journal. This can be digital or paper, but the important point is that it should be more than merely a record of the basic facts. The journal should include the following:

• Entry and exit points
• Your rationale for making the trade
• Your emotional reactions during the trade (this might sound strange if you are a newbie, but we’ll explain in more detail later on)
• The market context (such as economic data, geopolitical events, sentiment—was it a bullish or bearish market?)
• The outcome of the trade and your reflections on how well it went

This might seem to be an unnecessary step of admin when you are keen to get on with planning your next trade, but it is an invaluable learning tool. Having this level of detail at your fingertips helps you to review your past performance and identify patterns in your most and least successful trades. 

Over time, you’ll notice what strategies are working best for you and tweak accordingly. It is also important to understand your emotional state when you made the trade, because this can help you to work on weaknesses. For example, many new traders make unwise and impulsive decisions based on fear or greed rather than research and logic.

Get into the habit of journaling every day, even during your free trial, so that it will become an automatic part of your routine when you start live trading. 

Decide on your currency specialities

If you are new to forex trading, you’ll be strongly advised to stick to major or minor currency pairs, rather than venture into exotics (currencies from nations with emerging economies). The major currency pairs always include the US dollar combined with a currency from another developed economy, such as the Euro or the British pound. 

The minor currency pairs mean those from developed economies that do not include the US dollar. Focus your attention on just one or two pairs to start off with, because each pair has unique characteristics and will behave differently to other currencies. Give yourself time to build up expertise in a narrow range of currencies before exploring new ones. 

Decide if you want to trade the news

Trading the news means following economic announcements such as interest rate rises, changes in inflation and unemployment figures. This data can cause sudden sharp shifts in the market, providing opportunities to make profits. However, it requires experience and judgement, and decisions need to be made and executed quickly. 

Some prop firms place restrictions on how and when you can trade the news as part of their risk management policy. For example, they may ban trading five minutes before and after high impact news releases. 

Even if you decide not to trade the news, knowing when key economic data is released and understanding its impact on your currency pairs will help to improve your trading skills. 

Work on your emotional discipline

If you are some way into your forex trading journey and you can’t pinpoint the reasons why your trades are underperforming, it could be because you need to work on your emotional discipline. No matter how thorough your market research and technical analysis, if you are making impulsive decisions you will always sabotage your progress.

Common psychological pitfalls include revenge trading in order to win back losses, or overtrading because you fear missing out or are impatient to boost your profit targets. Traders, just like all humans, can be subject to biased thought processes such as seeking out information that confirms preexisting beliefs rather than making independent decisions.

These psychological factors can be subtle, or at least not obvious to ourselves. The best strategy to remain in control and maintain a strong trading mindset is to stick to a daily routine; always refer back to your trading plan before making any adjustments to your trades; and take a break after a loss rather than try to reverse the damage. 

Learn from others, but sift the noise

There are lots of online trading communities, YouTubers and so on where you can learn and pick up tips to improve your trading skills. However, not all of these will add value. Be sceptical of any advice that doesn’t prioritise sound risk management and logical data backed strategies. 

Remember, successful forex traders aren’t always the most knowledgeable: they are well balanced and disciplined individuals who are best placed to judge market opportunities.

There has been a huge surge of interest in forex trading in recent years as the digital revolution has widened access. Once largely the preserve of investment bankers, now anyone can open a forex account. Today, trillions of dollars are exchanged every day on the global forex markets, but how did it all start? Here’s a look at the history of forex trading.

Ancient beginnings

Ever since humans began trading in ancient civilizations, there has been some form of foreign exchange system. In its most basic form, this involved directly bartering for the exchange of goods. However, this soon became impractical as people travelled longer distances to make trades.

When coins were introduced in the 5th or 6th century BC, they began to replace goods as the standard medium of exchange. The expansion of the Roman Empire and the development of transcontinental trade routes such as the Silk Road led to a more formalised currency exchange system.

In Ancient Egypt and Greece, money exchangers would charge a fee for the conversion of currencies—basically, an early form of forex trading. This system was initially based on the weight of coins to determine value, rather than more sophisticated methods such as comparative analysis of economies and government policies. 

The first real forex market

The first forex market that resembles today’s system was introduced in Amsterdam in the 1600s, in order to stabilise exchange rates. The city had become a major financial centre as trade between Europe and the rest of the world increased. 

More countries introduced national currencies and merchant banks to support the formalised exchange of money, which was made more efficient by the introduction of paper currency. Exchange rates were calculated by the silver and gold reserves of a country, and also the strength of the economy and level of political stability.

The Gold Standard 

In 1875, the Gold Standard was widely introduced, which meant that countries could only print the amount of currency equal to the value of their gold reserves. Gold was (and still is) considered a precious metal due to its rarity value, visual appeal, workability and resistance to corrosion. 

The gold standard made it more difficult to artificially inflate prices, creating a fairer and more predictable foreign exchange rate and therefore strengthening global trade. England was the first country to peg its currency value to a fixed weight of gold in 1819, as the nation at that time was rich from the profits of its global empire. 

The practice spread to other wealthy countries in Europe and also to the United States. However, by the mid 20th century, the gold standard had fallen out of favour. It had disadvantages, as it unfairly hindered the economic growth of nations that did not have their own gold reserves, and it also prevented the increase of money supply during recessions. 

Britain was the first country to stop using the gold standard in 1931, followed by the US in 1933. The system was abandoned altogether in 1973. 

The Bretton-Woods Agreement

After the World Wars, it became clear that the world needed a new financial system to help rebuild national economies and create greater global stability. This led to the Bretton-Woods Agreement (1944), which involved most currencies being pegged to the US dollar, which in turn was backed by gold reserves. 

This system enabled fixed exchange rates, and the International Monetary Fund (IMF) and the World Bank were introduced to oversee global economic stability. The system worked well up until the 1960s, when it began to be undermined by the growing US trade deficit, which in turn decreased the country’s gold reserves. 

Eventually, the system collapsed after the US government stopped converting US dollars into gold in 1971, and was completely dismantled in 1973. This opened the door for the free-floating foreign exchange market that is the basis for modern day forex trading. 

The transition to modernisation

During the 1970s and 80s, most forex transactions were carried out within large financial institutions and central banks, via phone calls, telex or fax. This was rather cumbersome and prevented real time price determination. Only large institutions had access to the necessary infrastructure and funds for forex trading, so it was a very exclusive operation. 

Digitalisation increased throughout the 1980s, speeding up transaction times and reducing costs. However, it was widespread internet access and regulatory changes in the late 1990s and early 2000s that was the real game changer. It enabled banks to build their own trading platforms and stream live quotes, allowing trades to be instantly executed.

This in turn created a more competitive and transparent pricing system, further adding to the popularity of forex trading. It also led to the launch of retail forex trading, which means trading carried out via brokers or prop firms on user-friendly platforms that are designed for individual traders to use.

The 2000s forex explosion 

Retail forex trading expanded hugely during the 2000s, as the forex markets were decentralised and operated almost round the clock. Fast and reliable internet access, more sophisticated and affordable digital devices, and a proliferation of online prop firms significantly increased participation. 

These were heady early days for individual traders, who had powerful trading tools at their fingertips for the first time in history. However, it was also a turbulent time as the economy was rocked by a series of major events, including the burst of the dot.com bubble, the 9/11 attacks, and the global financial crisis of 2008/9.

The forex markets were also largely unregulated, and it became apparent that regulatory changes were needed to create a more safe and secure environment for traders. 

Today, the retail forex sector is overseen by regulatory agencies such as the US Commodity Futures Trading Commission (CFTC), the UK Financial Conduct Authority (FCA), the Australian Securities and Investments Commission (ASIC), and the European Securities and Markets Authority (ESMA).

The rise of prop trading platforms

Today, many individual traders aspire to work with a prop trading firm. Unlike brokers, prop firms use their own capital, so solo traders can operate with very little personal financial risk. Traders will also gain access to a choice of world-leading trading platforms and other digital tools and technologies, and the opportunity for high leverage.  

The system works by allowing traders to keep a percentage of their profits, while the firm absorbs any losses. Usually, the prop firm will operate a performance based system with scaling trading plans. 

New traders may start with a plan that allows them to keep 50 per cent of the profits they generate, and if they perform consistently, they will be rewarded with higher profit shares, capped at 80 or 90 per cent. There will also be the opportunity to increase account size, often into multi-million dollar sums. 

This is a very appealing system for traders who want to top up their income, or even make a complete career shift. The forex markets operate 24/7 throughout the working week, and also throughout much of the weekend, so trading can fit around different time zones, lifestyles and schedules. 

The markets are also highly liquid, meaning that buyers and sellers can readily be found for the major currency pairs. This leads to less price slippage and tighter spreads, which is ideal for short term trading strategies. Some prop firms also invest in trader development, such as providing access to online learning resources and trading communities. 

How to get started with a prop firm

The best way for a newcomer to begin trading with a prop firm is by completing a 14 day free trial. These offer the chance to get to know a trading platform and test out trading strategies in simulated market conditions. It gives traders a taste of what it’s like to make quick decisions under pressure, without any real financial risk. 

If the trader proves during the free trial that they can operate within the firm’s risk management rules and hit profit targets, they will be given the opportunity to progress to the evaluation phase. This is another 14 day program where the trader will take one or two tests to demonstrate their ability and knowledge.

Traders who are successful in passing the evaluation will be offered access to a funded account and a scaling trading plan. To give yourself the best chance of success, it’s important to have a good understanding of how the forex markets work, and the importance of risk management. 

Good traders do not just have technical skills: they are also highly disciplined and emotionally controlled and resilient. These qualities can take time to build, and it’s unrealistic to expect that you will be making large profits from day one. However, for those traders who are prepared to put in the work, the potential rewards are well worth it. 

Forex trading requires an analytical mind and mastery of technical skills, but equally as important is cultivating the right mental attitude. This includes the ability to make unbiased decisions and manage powerful emotions such as fear and greed. 

Here are some useful insights if you are curious to know more about the answer to the question: “What is the psychology behind forex trading?”  

Why are brains are not wired for trading

Human behaviour has been shaped over millennia for survival, and this means that our minds are hardwired to be loss averse and to hold on to assets. Forex trading requires us to go against these deeply ingrained instincts: it’s about taking a series of managed risks based on the pure logic of probabilities, rather than ‘gut instincts.’

New traders often find themselves compelled to hold on to a losing trade for too long in the hope of recovering their losses, or exiting a winning trade too early out of fear that they may lose their gains. Herd instinct—safety in numbers—can also be a factor: traders will sometimes be swayed into making a poor decision by market hype. 

The forex markets can be unpredictable and volatile, and often fast decisions need to be made. However, if these decisions are led by emotions or biased thinking, this will almost always lead to a poor trading outcome and is not sustainable over the long term. Therefore, traders need to train their minds to think rationally and avoid acting on strong emotions.

Key psychological factors in forex trading

Fear 

Fear is one of the most powerful and frequently experienced emotions in trading. It makes sense: we all fear losing something so fundamental to our security and wellbeing as money. This fear of loss can lead inexperienced traders to exit profitable trades too early, or be fearful of taking positions at all. 

The fear of missing out (FOMO) can lead to impulsive trades that are not properly thought through, or influenced by social media hype and misinformation rather than impartial research and analysis. 

Greed 

Greed is another primal human urge: our psyches are conditioned by years of evolution to accumulate assets and protect them. Inexperienced traders might feel under pressure to prove themselves, or just turn a quick profit, but these emotion-led goals are liabilities in the world of forex trading. 

The forex markets are immune to human desires, and the only way to navigate them well is by cultivating an unbiased mindset. This is what allows you to make decisions independently of hype or personal goals and emotions, which is a sign of good risk management skills—the key to becoming a consistent and profitable trader over time. 

Overconfidence

New traders can be prone to becoming overconfident after their first flush of success. This can result in a dangerous sense of invincibility, and the conviction that they have the magic touch. This can lead to overriding risk management rules, increasing leverage to reckless levels, and making poorly researched market energy and exit decisions. 

Hope and despair

Simply crossing your fingers and hoping that the markets will turn in your favour and rescue a losing trade almost always results in bigger losses. It is important to know when to cut your losses and move on. On the other hand, despairing after every unfavourable turn in the market can lead to panic selling, sabotaging the effectiveness of your trading strategy. 

Cognitive biases in forex trading

As well as being vigilant for emotion-led decisions, traders need to be aware of the cognitive biases that can affect their decision making process. These are the subconscious mental shortcuts that can distort logical thinking and influence the way we make decisions. 

While these biases help the brain manage the overwhelming volume of information we encounter daily, they can also lead to flawed judgment, particularly in high-stakes environments like forex trading. Because they’re deeply embedded in how we process the world, it’s impossible to eliminate them entirely.

These mental shortcuts affect everyone differently. Our personal experiences, education, social influences, and memories all shape how we interpret information. Most of the time, we’re not even aware of our biased thinking because it tends to be subtle and automatic. 

However, understanding these biases is essential, because they have the power to influence your trading decisions. Here are some of the most common biases that forex traders should be aware of. 

Recency bias 

Recency bias is the tendency to place greater weight on recent events while discounting older or more historically relevant data. In forex trading, this can lead to skewed decision-making, where traders become overly influenced by short-term market movements or the outcome of their most recent trades. 

For example, if a currency pair has been rising over the past few days, a trader may assume that this trend will continue, even if broader economic indicators suggest a potential reversal. This bias can result in impulsive decisions and undermine long-term strategy. 

To guard against recency bias, it’s important to consider the bigger picture and ensure that short-term fluctuations are viewed in the context of longer-term trends.

Anchoring bias

Anchoring bias is the tendency to rely too heavily on the first piece of information encountered about a market, often using it as a fixed reference point even when new, more relevant data becomes available. This initial ‘anchor’ can shape all subsequent judgments, even if it’s arbitrary or outdated.

For forex traders, anchoring can have serious consequences. It might lead to poor timing, such as holding onto a trade beyond its optimal exit point or selling too early. It’s particularly common when trades are made hastily or without sufficient research, increasing the risk of underperformance.

Disposition bias

Disposition bias, also called the disposition effect, can hinder trading success by encouraging two damaging behaviours: selling winning trades too early and holding onto losing trades for too long. This bias stems from our innate aversion to loss. 

Psychologically, the pain of losing often outweighs the pleasure of gaining, which drives us to make emotionally protective, rather than rational, decisions. While this behaviour may feel cautious or conservative, it often works against your trading strategy. 

Letting go of profitable trades too soon limits your potential gains, while clinging to underperforming positions in hopes of a rebound increases your exposure to losses. Striking a balance is key: avoiding disposition bias without becoming reckless about risk.

Confirmation bias

Confirmation bias occurs when we seek out information that supports our pre-existing beliefs while ignoring or dismissing information that contradicts them. This can lead to tunnel vision: where a trader becomes convinced of a certain market direction and filters out anything that challenges that view.

In forex trading, this can cause major issues during both fundamental and technical analysis. A trader may overlook key economic indicators or misinterpret chart patterns simply because they want the data to validate their assumptions.

For example, if you’re convinced the market is bullish because of positive sentiment on social media, you might adjust your exit strategy in anticipation of a continued price rise. However, you could miss more balanced or even contradictory views from economists or financial news outlets, which may have significantly improved your decision-making.

Tips for developing a strong trading mindset

Almost no one is naturally immune to the emotional and psychological pitfalls described above. Inevitably, new traders will make mistakes now and then, and they will need to have the resilience to learn from them and move forward, rather than become discouraged and overly fearful. 

However, it is possible to cultivate a trading mindset that will help to guard you against common errors.

Discipline

Above all, making consistent profits as a forex trader requires discipline. This means creating a well-defined trading plan, and sticking to it even when the urge to make an impulsive decision threatens to overwhelm you. It’s also important to be vigilant about risk management, always staying within sensible risk-reward ratios and using stop loss orders. 

Cultivating emotional literacy

Emotional literacy means the ability to recognise certain emotions and listen to what they are telling you. This means stepping back and taking a rain check when you feel anxious, overconfident or fearful. Aim to cultivate an emotional detachment from your trades: it’s a game of probabilities, and becoming emotionally invested tends to distort the outcome.

If you have prepared your trade well, just accept any losses as part of the process, or analyse what went wrong and adjust your trading strategy accordingly. Do not aim for perfection, because even the most experienced traders make losses. Remember that consistency over time is what really matters. 

Mindfulness meditation

Some high achieving traders start their day with a short mindfulness meditation. This clears out mental clutter, and improves focus and concentration, especially when under pressure.

So, there you have it: the forex markets can be volatile and unpredictable, and this inability to control events can be unnerving at first. However, what you can control is your response, which is why it’s essential to learn all you can about the psychology behind forex trading. 

The key to successful forex trading is typically not found in individual price actions but instead focusing on realistic, long-term trends.

This is especially true when working with an instant funding prop firm; risk management strategies are a prerequisite, risky strategies such as trading the news are somewhat restricted and the staging structure is based on consistency rather than wild swings in profitability.

This fits the general state of the forex market; currencies do not tend to be especially volatile outside of particularly extreme economic events.

However, because most forex trades are undertaken with significant amounts of capital involved, even small movements in pips can have a gigantic impact.

This means that when there are huge currency swings, the consequences can reverberate for decades.

Deutsche Mark (DEM) – Great British Pound (GBP) – 16th September 1992

It is impossible to discuss significant forex events without exploring the infamous Black Wednesday, the collapse in the value of the pound on 16th September 1992, in part because it was extremely aggressive forex trading that arguably changed world history.

There were two reasons for the huge swing, but the fall in the value of the pound is discussed far more than the flight to the Deutsche Mark, a unit of currency that no longer exists.

In the early 1990s, as part of an aim to bring Europe closer together economically, plans were in motion from the late 1970s up until the early 2000s to connect European currencies using an Exchange Rate Mechanism (ERM) in preparation for a single unified currency.

For the pound, this meant that after the UK entered the ERM at a rate of DM 2.95 to the pound, they had to keep the exchange rate at over DM 2.773 to the pound.

The goal was to provide stability, but several forex traders, most notably Stanley Druckenmiller and George Soros of Quantum Fund, noticed the relatively poor economy of the UK at the start of the John Major Ministry and the depreciation of the pound and realised how precarious their position was in the ERM.

The result was one of the most audacious and aggressive short campaigns perhaps ever seen in the history of forex, which created a vicious cycle that all but guaranteed that the pound would crash out of the ERM.

From DM 2.7784 on 16th September when the announcement that the UK had left the ERM, the pound plummeted to a low of DM 2.393 on 5th October, marking one of the biggest pip moves in the history of forex and netting Quantum Fund over a billion pounds in profit.

The consequences were gigantic and altered the course of British history. Whilst the ruling Conservative party were narrowly leading in the polls following a victory in the 1992 general election, they would not win a majority in an election for 23 years and were humiliated in a landslide in 1997.

It also stopped the UK from joining the European single currency and it has retained the pound ever since.

Argentine Peso To United States Dollars – January 2002

The infamous corralon (“big corral”) was the result of a disastrous attempt in Argentina to peg the value of the Argentine peso to the dollar, which was itself an attempt to avoid the intense hyperinflation the Peso had seen from 1975 up until 1990.

Following the Argentine banking crisis of 1990, the exchange rate in Argentina was fixed by law to one dollar per peso, an economic policy akin to King Canute telling the tide to go back.

Much like the ERM, this was designed to provide stability, but the poor execution of the policy meant that whilst it initially worked to curb inflation, businesses and wealthy individuals were by 2001 converting pesos into dollars and taking them out of the monetary system.

Fearing a bank run, Argentina’s Minister of Economy Domingo Cavallo instituted what became known as “Corralito”.

This limited cash withdrawals to 250 pesos per week ($250), which made the issue worse as most Argentinians did not have a bank account and most businesses did not accept debit cards, which were excluded from the restrictions.

Following a period of violent civil unrest which led to the resignation of President Fernando de la Rua on 20th December 2001 as well as his successor a few days later, Eduardo Duhalde brought an end to the uprising by ending Corralito.

This turned out to be a case of jumping out of the frying pan and directly into the fire, however, as the peso was forcibly devalued and then floated on the forex market, where its value promptly plummeted by 75 per cent.

Outside of periods of outright hyperinflation, it is one of the worst drops a currency has seen in recent years, and there are potential forex investors who made a lot of money by seeing the unstable equilibrium as it was happening.

Forex trading is gaining momentum as a credible way to top up your income, or even as a standalone career. The barriers to entry have been significantly lowered in recent years, thanks to prop firms that offer access to funded accounts and leading edge online trading platforms. 

However, it’s not just a case of signing up and pocketing the profits: forex trading can be complex, and there’s the potential to make losses as well as gains. Having said that, learning forex is not as difficult as some people would have you believe. Here’s a comprehensive guide on how to start learning trading for beginners. 

What does forex trading involve?

Forex trading involves exchanging one currency for another, such as buying Euros (EUR) while simultaneously selling US dollars (USD). The transactions always happen in currency pairs, for example EUR/USD. The first currency is the base currency, and the second is the quote currency. 

If the price of a currency pair goes up, it means that the base currency has strengthened against the quote currency. Various factors can influence the price of a currency, including global economic conditions, geopolitical events, economic data releases such as unemployment figures, and changes in interest or inflation rates. 

Most of us will have exchanged foreign currency at some point as part of international travel preparations, but the majority of forex trading is carried out speculatively. This means that the trades are made to hedge against future changes in price, or to profit from the difference in value of two currencies by selling at a peak in the market. 

How does forex trading work?

Forex trading is a decentralised system, meaning that there is no central exchange such as the New York Stock Exchange. Instead, it takes place across a global network of banks, financial institutions and brokers, described as over the counter (OTC). Solo traders access the markets through online brokers or prop firms. 

If you choose to trade via a prop firm, you will be able to start trading with only a small investment of your own capital (or in some cases, none at all). With high leverage, round the clock market access and a fast turnover of trading activity, forex trading is an attractive option for many individuals.

It’s not necessary to have previous financial experience or a degree in economics to be a successful trader, but it’s necessary to understand that as well as the potential to make great profits, there is the risk of making significant losses. That’s why it’s important to devote some time and effort to learning the core principles of forex before trading in the live markets. 

There is no need to invest a lot of money in your forex education however, as there are plenty of free online resources. These include courses that you can work through at your own pace, and will usually include materials such as quizzes, infographics, videos, and articles. Find one that suits your learning style and timescale.

You might find that some of the courses are free up to a certain point, and then will require a fee or subscription if you want to progress to the more advanced stages. Not all courses are worth your time, even if they are free: steer clear of any promises to ‘get rich quick’ or make a million bucks in six months: this is really not how forex works.

Successful traders build their careers on steady and consistent progress over time: expect it to take at least a year before you are making big profits, especially if you are trading around a full time job and other commitments. 

Other good ways to learn about forex include joining an online trading community or forum where you can chat to other traders and exchange tips and ideas. You might even be able to find a more experienced trader who is prepared to mentor you. 

Good old fashioned books are another affordable way to improve your trading knowledge, particularly when it comes to the psychology of trading (which we’ll discuss in more detail later). Acclaimed books on this topic include Mark Douglas’s Trading in the Zone, Denise Shull’s Market Mind Games, and Dr Brett Steenbarger’s The Psychology of Trading.

Step 1: Understanding the key terms

If you have no prior knowledge of trading at all, the first step should be to learn the key terminology of forex. This will familiarise you with the core concepts, and is also essential for understanding the next steps properly. 

Currency Pairs

We’ve already mentioned the basic function of currency pairs. Currencies are generally divided into three groups: majors, minors, and exotics. 

Majors

The majors are the most frequently traded currencies from the world’s largest or most stable economies, and include a pairing of the US dollar (USD) with any of the following: the Euro (EUR), the pound (GBP), the Canadian dollar (CAD), the Australian dollar (AUD), the New Zealand dollar (NZD), and the Swiss franc (CHF) and the Japanese Yen (JPY). 

Minors

The minors refer to a currency pair that includes one of the currencies mentioned above, without the USD. For example, EUR/GBP or CAD/AUD. 

Exotics

The exotics refer to currencies from smaller or emerging economies, such as the Mexican dollar or the Hong Kong dollar. 

As a beginner, you will be strongly advised to trade major currency pairs, because of their high liquidity. This refers to the ease with which the currency can be bought and sold in the market without significant price slippage. They are generally less volatile and easier to predict than minors or exotics as well. 

Pips and lots

Pip is short for ‘percentage in point’, and it’s the smallest whole unit price move a currency pair can make. A pip’s value is one-hundredth of one per cent. A single pip is represented by the fourth decimal place in a currency pair quote price. 

A lot refers to the standard size of a trade. A standard lot size is 100,000 units of the base currency. It’s also possible to trade with mini lots (10,000 units), micro lots (1,000 units) and nano lots (100 units). 

Leverage and margin

Leverage is borrowed capital that allows you to control larger position sizes with a small amount of capital. Typically, forex brokers and prop firms offer the potential for high leverage, maximising the potential for profits (but also losses). 

Margin refers to the minimum amount of money required to open and maintain a trade. In forex, this will typically be a small percentage of the full value of the trading position, because of the high leverage available.

Technical and fundamental analysis

Forex traders use a combination of technical and fundamental analysis to predict price movements in the market, which allows them to plan their trading strategies. Technical analysis involves using charts, graphs and indicators to review historic price patterns and forecast future movements.  

Fundamental analysis involves using economic indicators such as GDP, inflation, unemployment figures, interest rates, inflation and geopolitical events to predict which way the markets will move. 

Creating a trading strategy

Before attempting to trade, you need to put together a strategy that should cover the following points: 

• Entry and exit criteria
• Risk-reward ratio
• Timeframes you’ll trade (e.g. daily, hourly, 15-min)
• Rules for managing losses and taking profits

Risk management is a crucial part of a trading strategy. Beginners should always use stop-loss orders to minimise potential losses, and take-profit orders to lock in gains. Never risk more than one to two per cent of your total capital on a trade. 

Most traders aspire to a fully funded account with a prop firm, because this allows them to trade without risking any personal capital. Although any losses you make will be covered by the prop firm, they will naturally want to work with traders who can demonstrate good risk management skills and operate within their guidelines. 

Start with a demo account

Many prop firms offer a free 14-day trial which allows you to trade in simulated market conditions without risking any real money. This is a good opportunity to familiarise yourself with the trading platform and get used to making quick decisions under pressure. You can also roadtest different strategies and iron out any flaws. 

The psychology of trading

Finally, before you begin live trading, it’s wise to understand the psychological pitfalls of trading. Beginners can be prone to letting emotions such as greed, fear, and impatience influence their decision making. Learn how to develop a purely rational approach to trading and be alert for signs of emotional bias in your decisions.

If in doubt, step away from the screen and refer back to your trading plan. Finally, be patient and remember that it takes time to build real skill and confidence. Focus on the process rather than profits, and over time the rewards will come to you. 

In the world of forex trading, mindset is money, and one of the determining factors for continued success when people apply to a prop firm, whether they apply for instant funding or through an evaluation process, is their mindset.

Over the last few decades, the effects of mentality on financial markets have been more broadly understood, and the field of behavioural economics is predicated on the idea that people will make decisions based as much on impulse and heuristics as they will on theoretically perfect economics.

This is why concepts such as mindfulness and psychological resilience are key to becoming a successful trader; there is a lot of noise in the forex market, and every single trader will face a losing proposition at some point.

However, another, potentially larger barrier for many traders is psychological resistance, which despite a somewhat similar spelling, could have a much more damaging effect on trading.

How Does Resistance Differ From Resilience?

From a psychological perspective, resistance is a form of mental self-defence where people are reluctant to accept certain ideas, particularly ones that involve self-examination, taking responsibility or behavioural changes.

It can manifest in a few ways, but the most common and relevant to trading are:

• Inner conflict, which typically manifests as anxiety, choice paralysis or a reluctance to choose.
• Psychological deficiencies, such as passive-aggression or a projection of cynicism onto other people, the market and the world.
• Denial of new ideas or uncomfortable truths that a person finds difficult to accept.
• Hyperfocusing on narrow details and data points to the extent that it distorts any understanding of the bigger picture.
• A preference for familiar entropy over change in one’s best interest, even if this proves self-defeating or self-sabotaging.

In some ways, it is the dark mirror image to resilience; whilst resilience is a determination to not allow setbacks and necessary changes to negatively affect us, resistance is a defiance of change when it is ultimately necessary for us.

Resistance is a fundamental neurobiological phenomenon, and for most people is either relatively innocuous or even beneficial.

Much like flight-or-fight, resistance is intended to keep us safe, and there are times when that instinct will help us to avoid situations where we might end up mentally or physically harmed. 

Resistance is usually a reaction to previous negative events, and an attempt to ensure that something bad does not happen twice.

However, it is very much a double-edged sword, and there are a lot of ways in which resistance can affect traders.

How Does Resistance Affect Traders?

Resistance is an unconscious, automatic process, which means that it can affect people in ways that they may not realise or have assumed to be somewhat innate.

In the trading world, it can manifest in the form of an inability to take an analytical, balanced perspective on one’s strengths and weaknesses, which typically means that people cannot accept either criticism or compliments.

Negativity should not be confused with realism, and having an overly cynical view of the market can lead some traders to miss out on potentially lucrative opportunities even in more difficult market moments.

It can also manifest as a preoccupation with being seen as independent, which can itself mean that you lose vital opportunities to network, to discuss potential strategies or where you could improve for fear of losing face.

It may also make losses more psychologically affecting because it compounds with self-depreciation and a belief that one needs to have a perfect record to be considered a good trader, when the only true measure of success in the market is long-term profits.

It can even lead to cognitive dissonance, where we reject information that contradicts our existing beliefs about the market, something that can and indeed has led to many portfolios being wiped out overnight.

How Do You Stop Resistance Hurting Your Portfolio?

As is true in other forms of resistance, the solution to psychological resistance is not to fight it directly but instead to accept it, understand it and mitigate its effects.

In the field of psychotherapy, therapists and counsellors will rarely actively fight against resistance, as this can make any therapeutic interventions less effective.

Understanding where your resistance comes from, its underlying causes and triggers helps to ultimately reduce its effects or potentially even turn some elements of it into the foundations for resilience.

This is what makes a trading journal a vital part of the toolset of any forex trader; whilst it is important for keeping track of transactions, it also works like a mindfulness or therapy journal in recording thought process and potentially identifying barriers to self-improvement.

The forex market is the largest and most liquid financial market in the world, and it’s possible to make or lose a fortune in a matter of seconds. Of course, the majority of traders will deploy effective risk management strategies that enable them to make modest but consistent profits over time, rather than deploy high-stakes tactics.

This approach is regarded as the best way to become a successful prop firm trader, and in most cases you’ll need to prove that you can follow the firm’s risk management rules and operate within their drawdown limits. However, it’s interesting and educational to learn about those speculators who made the biggest forex trades in history.  

How do forex trades make money?

Forex trading involves buying one currency while simultaneously selling the other, and speculators aim to profit from the changes in the value of the currency. In order to work out the probability of the markets moving in their favour, traders will take a variety of approaches. 

These are often based on a mixture of technical analysis (such as price patterns and support and resistance levels) and macroeconomic trends (such as inflation, interest rates and other economic variables), as well as geopolitical events such as elections and international conflicts.

Most traders will use leverage (borrowed funds, such as from a prop firm) to increase their position size, and therefore the potential gains on their trades. However, this also increases the potential for making losses. Some of the most spectacular profits (and losses) in forex were made on highly leveraged trades. 

‘Shorting’ means a trader will sell a currency because they believe the value is about to go down and therefore they will sell or avoid buying it, while ‘going long’ means that a trader believes the value of a currency will increase, and therefore they will be keeping or looking to buy the currency. 

Without further ado, let’s take a look at these bold market manoeuvres, and the lessons we can take from them. 

Andrew Krieger, 1987

Krieger is well known for his ambitious forex trades, and most of all for going short against the New Zealand currency in 1987 and netting a profit of over $300m for his company. During the stock market crash known as Black Monday, Krieger correctly identified the overvaluation of the NZD in the market and took up a short position.

George Soros, 1992

Perhaps the most famous trade of all that is still talked about today in awed tones was made by George Soros, AKA The Man Who Broke The Bank of England, in 1992. During the 1970s and 80s, the UK struggled to maintain stable inflation rates and this resulted in the government’s decision to join the European Exchange Rate Mechanism (ERM) in 1990.

The ERM was designed to stabilise exchange rates and eventually pave the way for a common currency for EU countries (the Euro). However, various economic and geopolitical factors interacted negatively on the value of the GBP, particularly against the stronger German economy and the impact of the country’s East-West reunification in 1990. 

Britain’s scepticism about joining the Euro was also a contributory factor. The Bank of England raised interest rates in order to shore up the pound and attract more investors. However, influential investors such as George Soros were critical of the ERM system, and did not have faith in its ability to maintain a strong pound. 

Therefore, Soros and others began to short the pound, drawing on his hedge fund to accumulate an enormous short position of $1 billion. This created an oversupply and drove down the market value of the pound. The British government responded by raising interest rates again and using its foreign exchange reserves to buy back pounds from Soros.

However, market sentiment shifted against the pound, and these measures were ultimately not enough to reverse the damage. Soros doubled down and increased his position size from $1.5bn to $10bn in mid-September, a day that came to be known as ‘Black Wednesday.’ 

The pound plunged in value against the German mark and the US dollar, and the government was forced to withdraw from the ERM. Soros made a profit of more than $1bn in a single day as a result of the pound’s collapse. 

Soros won both praise and criticism for his audacious role in Black Wednesday. Arguably, his actions exposed pre-existing flaws in the system, and the resulting reforms may have ultimately helped to strengthen the UK economy. 

Stanley Druckenmiller, 1992

Druckenmiller worked for Soros in the early 1990s, and was already his star trader. He was also early to pick up on the weakness of the pound, and he forged a different strategy to Soros, going long on the German mark. He also bought British stocks as he correctly predicted that the UK would have to slash lending rates when the pound collapsed.

A further element of his strategy was to buy up German bonds, as he correctly anticipated that German investors would move to bonds as stock growth faltered. This detailed strategy, based on a thorough understanding of economic and geopolitical factors, as well as technical analysis, netted Druckenmiller a multi-million dollar profit. 

Swiss Franc Shock, 2015

Not all record-breaking forex trades result in massive profits: the forex markets are notoriously volatile, and can also create huge shockwaves and losses. One prime example of this was the Swiss Franc shock of 2015. Like the British, the Swiss did not join the Euro when it was introduced in 2002. 

The Swiss franc (CHF) has traditionally been regarded as a safe haven currency, because although Switzerland is a small country, it is regarded as exceptionally politically stable and strong, with banks and governments taking a traditionally non-interventionist approach. The country constantly takes a neutral stance in foreign affairs, and inflation rates are low.

Furthermore, the Swiss National Bank maintains the world’s seventh largest gold stockpile. All these factors means that the CHF is considered to be a major currency and one of the most frequently traded currencies on the forex market, with a consistently higher value than the US dollar. 

In view of the high status of the CHF, when the Swiss government announced that it was scrapping the currency peg of 1.20 to the Euro on 15 January 2015, it sent shock waves through the forex markets and the wider global economy. This was despite repeated reassurances that the country was committed to the Euro.

The CHF immediately appreciated in value by 20 per cent, which impacted Swiss importers and service providers and destabilised a historically stable economy. The sudden and unexpected move caused massive losses to businesses, because it was too expensive to do profitable business in Switzerland.

Even highly seasoned forex traders and hedge fund traders were blindsided by the move, with many traders losing millions of dollars and some brokers even going bankrupt. 

This shows that even in the most stable markets, the most unexpected events happen. Strong risk management and diversification is crucial for survival when trading large position sizes with high leverage. 

What can prop traders learn from record-breaking trades?

These legendary trades demonstrate both the potential for profits in forex trading, but also the necessity for thorough research and analysis, and an understanding of the wider market  context of each trade. 

The take home message is that if you’re going to make aggressive trades, then you need to take an equally aggressive approach to managing risk. You also need to have a clear head with the ability to filter out ‘market noise’, and impeccable timing because the markets can move fast. 

Making unbiased decisions

For new forex traders, one of the biggest take-aways from these high-stakes trades is to learn how to make independent decisions that are not influenced by social media hype or emotionally driven. The most successful trades are always strategically driven, and ambitious strategies must always be underpinned by meticulous risk management. 

When you progress to larger account sizes and can command higher leverage, it becomes more essential to be up to date with macroeconomic trends. Shocks can happen, even to strong currencies such as the Great British pound and the Swizz franc. Be prepared for anything, and think big but stay disciplined.