Author: Chris Miles

WILL THE MARKET RISE OR FALL?

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Do you know if the market will rise or fall in certain situations? Take our short test and see if you know if the market will rise or fall!

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It’s All Just A Matter Of Timing…

What makes the forex market so attractive to would-be traders isn’t just the fact that it’s the biggest financial market in the entire world. It’s also because the market is open 24 hours a day and traders will always have at least one opportunity for investment at any given moment in time… the markets never sleep, after all!

 

By that extension, naturally, you can probably expect to adjust your own sleeping patterns somewhat if you do want to see success as an FX trader – and if you’re not already a morning person, you might want to take some steps to make a few changes in this regard, so you can be ready to rock and roll at a moment’s notice. Time is money, so they say.

 

Our top tips to help you get to grips with all those early starts include setting yourself a consistent sleep schedule, having strong nighttime and morning routines, getting regular exercise and maintaining good sleep hygiene… all of which can help you wake up feeling refreshed, even if it’s 4am where you are.

 

You’ve got to be up and at ‘em to ensure you’re present when the various markets open and close. Trading opens each day with Australasia, then Europe and then North America, with the different time zones between continents making it possible for the forex market to stay open all the time, in some capacity or other.

 

Understanding time differences and what these can mean for your trading will form a key part of any successes or failures you see in your career as a trader.

 

They say that when God closes a door, somewhere he opens a window – and the same is true for forex markets. When one market closes, another will just be opening up and traders will also be able to take advantage of overlapping markets from time to time, which represent some of the most active – and most lucrative – trading periods of them all.

 

Forex trading hours

 

Make a note of the time that each market will open up in every participating country as a first step towards furthering your trading career. There is overlap in some time zones, but they are typically accepted as being:

 

• Sydney: 5pm-2am EST (10pm-7am UTC)
• Tokyo: 7pm-4am EST (12am to 9am UTC)
• London: 3am-12pm EST (8am-5pm UTC)
• New York: 8am-5pm EST (1pm to 10pm UTC)

 

Top note: Although the trading volume will fluctuate session by session, you’ll typically find that it is at its highest when the London afternoon and New York morning markets overlap, so this could be something of a sweet spot to try and hit as and when you can. Trillions of dollars in value are traded at this time!

 

If you prefer life as a day trader, you might find you’d rather avoid holding positions overnight, because even though the markets are closed they can still move at any moment and you could find yourself compromised when you wake up and check your trades.

 

Although the market does close at the weekend to retail traders, FX trading can carry on over the weekend through organisations like central banks. Price differences are often seen between the close on Friday and the open on Sunday, a difference that’s known in the ‘biz as ‘a gap’.

 

If you don’t want to risk your position at this time, all you need to do is close your position on the Friday and put limits in place to manage the risk. No nasty surprises… hopefully!

 

When is it best to trade?

 

Although the market is open 24 hours a day, five days a week, this doesn’t mean that all hours of the day are created equal where trading is concerned.

 

Being familiar with the overall market is a must, since the best time to trade is when it’s at its most active. If you have one or more of the four markets open at the same time, it’s an incredibly exciting time for traders and you’ll definitely feel a buzz of anticipation and thrill in the air. Positively palpable!

 

Between 8am and midday, the US and London markets overlap. Since price activity will be high at this time, you’ll find that this is the best opportunity to trade.

 

Between 2am and 4am, the Sydney and Tokyo markets overlap, with EUR/JPY the two main currencies affected – and therefore the best currency pair to set your sights on.

 

And between 3am and 4am, the London and Tokyo markets overlap. It would perhaps be best to put this one at the bottom of your priority list for now, since this overlap will see the least amount of activity because the majority of traders in the US will be in bed and an hour isn’t really enough time to see significant changes take place.

 

In terms of times to avoid, you could potentially have a lie-in on Monday mornings because it takes a bit of time for the market to warm up… but make sure you’re present and correct come the afternoon, so you can see what’s going on and plan the rest of your week accordingly.

 

You’ll likely find that it isn’t until Tuesday at the very earliest that you start to notice the market reaching peak liquidity (with liquidity referring to the ability of currency pairs to be traded without having a big impact on its exchange rate). Trading activity typically reaches its peak in the middle of the week, so this is something else to bear in mind.

 

The worst times to trade

 

In as much as there are profitable times in which to trade, there are also times that you might be wise to avoid if you want to maximise success and minimise failure.

 

The crossover between Sunday afternoon and Monday morning doesn’t hold much promise of gold for FX traders, so you can chill out with the paper and a leisurely yet healthy breakfast at the start of the week without having to worry that you’re compromising your position. You can rest assured that everyone else will be doing exactly the same, as well!

 

However, this does also represent an excellent opportunity to focus on other parts of your trading strategy, assessing the previous week and plan for the coming week accordingly – so perhaps a working breakfast could be a great habit to adopt on Mondays.

 

It’s also important that you hold firm on any trading positions if you’re expecting any major news releases, updates, reports, data and so on. This is why it’s so important to stay up to date with the daily economic news, so you can put a calendar together of major releases and plan in line with what’s coming up.

 

As you’re sure to already know, the forex market is affected by political news and updates, economic data and financial reports – and a hugely important part of being a successful trader means gaining a robust understanding of the news and how to react to what’s going on.

 

National holidays are also a time to avoid trading if you can avoid it. Because banks shut up shop at such times, forex trading transactions drop off significantly, which can mean you start seeing erratic market behaviour… and this can represent a real danger zone for traders, especially those just starting out – so it’s perhaps wiser to just steer clear where possible.

 

Our top tips for timing the market

 

Whether you’re a novice or an old hat trader, it can be difficult to get the timing of the market right, but it’s absolutely essential that you do if you want to see the kind of successes you’ve only dreamed about thus far.

 

Our first top tip is to come up with a trading strategy that covers you for as many eventualities and variables as possible, as well as helping you to time price movements more accurately. Of course, you won’t always get it right but a solid strategy will always help you predict trades more effectively as time goes on.

 

And our second tip is to not become too wedded to your trading strategy. Yes, it’s a necessary guide but you should always be prepared to see it evolve and develop, particularly as you become more aware of how markets work and how you can react in line with what’s happening.

 

It’s also important to make sure that you follow a robust risk management procedure as well, having stop losses in place and only trading those funds that you can realistically afford to lose.

 

If you’re keen to get started and are looking for a funded forex trading account, get in touch with the team here at FTUK to see what we can do together. You can trade where you like, when you like with us – all you need to do is join any of our funding programs and start building up your proprietary trading experience immediately.

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How To Use The Economic News For Forex Trading

The dynamic forex market is strongly driven by news events. Therefore, traders follow the economic news closely in order to anticipate market movements, and make profitable trading decisions based on this. Here is a guide to the most relevant news releases to follow, and how you can use this information to best influence the outcome of your trades.

Which type of news is important in forex?

The most relevant news to forex is economic data releases, such as Gross Domestic Product (GDP), inflation, Consumer Price Index (CPI), interest rates, and unemployment figures. There is data released on a daily basis for all of the major currencies. As the US dollar (USD) is the most popular currency, the market responds to US based data most sharply.

Keep an eye on countries which have other major currencies including the Euro (EUR), the British pound (GBP), the Canadian dollar (CAD), the Japanese yen (JPY), the Australian dollar (AUD), the Swiss franc (CHF), and the New Zealand dollar (NZD).

 

How should you select which news releases to follow?

Of course, you should select which news to follow based on the currency pairs that you trade with. Be aware that some data will only have a low impact, so it is important to know what the key releases are, and how they affect your chosen currency pairs. The significance of the data varies according to the country, and the state of the economy at the time.

Traders use the economic calendar to keep track of upcoming data releases and events that affect the movement of the markets. Each country or major economy will have a specific economic calendar, which can usually be viewed online for free. Bear in mind that there may be discrepancies between them, depending on who the website is aimed at.

As you become more experienced at forex trading, you will probably find that you need a customisable calendar, so you can focus in the currencies and indicators which are most relevant to you. Most of the information on the calendars relates to current financial and economic reports, and projections and consensus about future financial events.

Unemployment rates

The unemployment rate is one of the key releases that impacts the forex market. The world’s major economies are designed to maintain a low rate of unemployment, which means that the majority of the workforce can obtain gainful work, either as an employee, or through self-employment. It’s a sign of a healthy economy that is functioning well.

On the other hand, a high unemployment rate is a sign of a struggling economy. Consumers will have less money to spend on non-essential goods and services. Government expenditure and borrowing will increase, because of extra pressure on the benefits system, and reduced tax revenues.

All this reduces the demand for imported and domestic products, so the GDP of the economy is lowered, which also affects the value of the currency exchange rate. This means that foreign investors will look elsewhere, and this further depreciates the currency.

The central bank may respond to a higher unemployment rate by cutting the interest rate to encourage more borrowing and spending. This in turn may lead to a movement in the forex market. If the unemployment rate is reducing, the central bank might decide to raise interest rates, to control inflation and add value to the currency.

The major economies release monthly unemployment statistics, which are followed by a short period of volatility in the markets. If the rates are higher than expected, the currency of the country is likely to take a downturn. Conversely, if the rates are lower than expected, the markets may respond with an upswing, based on the prospect of higher interest rates.

Therefore, in the hours after the latest statistics are released, forex traders will look to sell the currencies of countries with higher-than-expected unemployment rates, and buy the currencies which are supported by a lower-than-expected figure.

Other key indicators

The unemployment rates are key because they tie in with most of the other major indicators, such as the GDP, interest rate, inflation rate, retail sales, consumer confidence surveys, trade balance, business sentiment surveys, and the CPI.  Sometimes, the market will prioritise one particular release over another, so keep an eye on what is trending.

For example, energy prices are volatile at the moment. Prices have been rising sharply in the past few months as a consequence of shortages, Covid disruption, and the sanctions against Russia following its invasion of Ukraine.

The Organisation of the Petroleum Exporting Countries (OPEC) controls about 44% of the world’s crude oil production, and therefore holds an influence over oil prices. This means that currencies of countries such as the US and Canada, which are major oil producers, are more affected by changes in oil price than those with low or no oil reserves.

The markets also react strongly to geopolitical events, such as elections, wars, civil and political instability, pandemics, and natural disasters. Therefore, keep an eye on the current affairs of those countries who use your trading currencies. 

News trading strategies

So now you know what news items to follow, but how do you apply them to your trades?

Spreads in forex widen during periods of volatility, meaning that the difference between the broker’s sell rate and buy rate increases, and this heightens the risk of losses. The major currency pairs tend to be least affected by this, so if you are relatively new to forex trading, it’s best to stick with those, and avoid exotic currencies.

Sometimes, the predicted reaction will not occur, or the opposite reaction may happen. There may be a whipsaw effect, which is where the market shoots in one direction, only to bounce sharply back in the other direction. If you hastily make a move before being certain how a particular currency will react, you will risk incurring heavy losses.

Why is consensus important?

Before the news item is released, analysts will reach a consensus on what that data will contain. For example, based on the available stats and other information, they may predict that the UK unemployment rate will increase to 6%. This would mean that major traders sell off their GBP, and buy up other currencies, ahead of the news.

If the rate is confirmed at 6%, although this represents a weaker economy, the currency rate for GBP may not be affected. This is because the most influential traders have already made their move. If the data was unexpected, such as a fall to 5%, then the demand for GBP might shoot up, because lower unemployment rates are a sign of economic strength.

This is not to say that this will definitely happen, because other factors also influence currency price, or the higher employment rate can be explained by an uptake in seasonal temporary employment. It is important to look for a range of influences, rather than have an individual focus.

Trading before the news release means you can enter the market in a lull. Read up on the consensus, so that you know how the market is likely to react. As we have seen, this is not without risk, as sometimes the consensus is not played out in the actual figures. This is likely to cause high volatility in the markets.

It is advisable to use stop loss or stop limit orders to mitigate against losses or protect your profits, should the news defy expectations and the markets turn strongly in the wrong direction.

Trading post-news release

It is a more common strategy to trade post-news, which is referred to as the breakout. It may be tempting to respond instantly, but the best strategy is usually to wait and see what the reaction in the markets will be. The movement in the first minutes or hours after a release can be distorted by speculative traders, who will not drive longer term trends.

Although it is possible to take a profit from speculative trading, experienced traders will avoid this, due to the higher level of risk comparative to the potential rewards. Wait it out, until the artificial spike in the market has passed. Most news is traded on a short-term basis of days, but sometimes the impact may be felt for weeks.

Research the previous performance of the news release you are interested in, to see whether it plays out with a short term or a long-term impact. For a short-term trade, monitor support and resistance lines, and identify potential bounces. Buy at a point just slightly below the level of support, and sell near the level of resistance.

For a longer-term trade, track the overall trend rather than the smaller fluctuations that occur within short timeframes. Remember that there will always be an element of unpredictability when trading on forex news releases, so it is essential to have a robust risk management strategy in place.

Know in advance how much money you are prepared to lose in the worst-case scenario, and do not be tempted to go over your limit in the heat of the moment. News trading can be particularly high-pressure, as there are so many variables and unknowns, so you need to toughen up psychologically as well as have a solid trading strategy.

If you are looking for instant funding forex prop firms, get in touch today.

 

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How To Determine Your Exit Strategy

Traders will often spend a lot of time perfecting their entry strategies, but the most crucial point in a trade is knowing when to exit. This should not be left to the inspiration of the moment, but needs to be determined in advance. Here is a look at why you need an exit strategy, and what you need to consider when determining yours.

 

Why do you need an exit strategy?

If you don’t have a plan, you are likely to make a decision under pressure, which is not based on rational thought. The dilemma is understandable: if you err on the side of caution and exit early, you could lose out on a good profit. On the other hand, if you go for more, and hold a position too long, you could end up taking a loss.

 

To avoid such an emotion-led response, it is important to implement a well thought out exit strategy. There are some steps you can take to help you exit a trade as close to the profit peak as possible. However, there is no one particular rule that works for everybody; your approach will be determined by your individual circumstances and trading goals.

 

What do you need to consider for your exit strategy?

This will depend on your level of trading experience, your risk tolerance, and whether you are looking for a short-term or long-term trade. Newcomers are best sticking to a simple strategy, which will not necessarily be any less effective than a complex one. Here are some of the most frequently used exit techniques in forex trading.

 

Stop-loss orders

One of the most common strategies is to place a ‘stop-loss’ on the trade before the entry point. This automatically triggers an instruction to sell the currency pair at the market price once a specified price is reached, and acts as a buffer zone against substantial losses.

 

For example, if a trader has a position worth £50, they could enter a stop-loss order to sell at £45, in order to avoid any further risks. 

 

If you have a long position that is making a good profit, it is possible to move your stop-loss order, in order to protect your profits, should the markets suddenly take a swift downturn. A short position which is performing well can also be protected, by moving the stop-loss from the loss zone, and higher into the profit margin.

 

Stop-limit orders

A stop-limit order is used in a similar way to a stop-loss, and is designed to mitigate the risk of uncontrolled losses. The forex markets can be very liquid and volatile, so unless you are an experienced analyst, stop orders are a very useful tool. Unlike stop-loss orders, stop-limit orders are only filled if the market trades at the pre-determined price.

 

The advantage of this is that the price limit is guaranteed, unlike with a stop-loss which sells or buys at the market price, not the specified price of the order. The disadvantage of a stop-limit order is that the trade may not be executed at all, if the conditions are not met. Should the markets take a sudden plunge, substantial losses may occur.

 

If the trader is prepared to sit and wait out the downturn, the price may well rise again within a short time-frame. However, it’s worth bearing in mind the factors that influence the markets to predict how likely this is to happen.

 

For example, foreign exchange prices are strongly linked to inflation rates, so study what the long-term outlook is for the countries relevant to your currency pairs. Other factors to keep an eye on are the unemployment rates, level of public debt, and current level of demand for the leading exports of a particular country.

 

How to set your stop order levels

Knowing why to use limit orders is important, but it raises further questions about how to use them to maximum effectiveness. Too cautious, and the potential to make gains is limited. On the other hand, too wider margin can leave the trader vulnerable to substantial losses. Some of the decision depends on your personal risk tolerance.

 

Support and resistance levels

To refine your process further, some technical analysis is useful. One of the key methods successful traders use to identify price points is monitoring support and resistance levels. Support refers to the price level where a downturn in the market is expected to pause, because of favourable conditions.

 

A resistance zone is where an uptrend in the market is predicted to pause. Traders watch support and resistance levels to judge which way the markets will turn, predicting whether the price will remain held by the support or resistance level, or whether it will break through.

 

The concept is rather like a rubber ball bouncing off a floor, and hitting the ceiling. Market forces can speed up or slow down the pace. If the direction of travel is wrong, the position can be quickly closed to minimise losses. Support and resistance levels can be monitored visually on price charts, which track the timing, pace and volume of support and resistance.

 

Moving average trailing tops

It is important to be aware of moving averages when making predictions. This is a way of tracking whether a long-term trend is moving up or down, regardless of day-to-day fluctuations.

 

If a trader is looking to make a profit on a long-term position, they will track the moving average, and place a stop order just slightly below the level of support. The theory is that a trader will buy currency pairs when the price is above the moving average. A trader looking to sell will take advantage of a price below a moving average.

 

When the trend begins to shift in an unfavourable direction, the trader will close out their positions, to protect profits or minimise losses. This type of exit strategy is known as a moving average trailing stop.

 

Scalping

Some traders have a deliberate policy of holding positions for a very short time only, usually just seconds or minutes, with the aim of making a small profit. This process is referred to as scalping.  

 

Day-trading is another type of short-term trading strategy, where positions are held for one day at most, and usually closed within hours, or minutes. It’s a strategy often used by novices, because the barriers to entry and risks are lower, and you need less market expertise to be successful.

 

More experienced traders also use scalping, because it allows them to take advantage of the high volumes of leverage available, particularly in funded trading accounts in the UK. This means that large position sizes can be taken for a fraction of the actual cost, offering the potential for lucrative profits in return for a small investment.

 

Traders will often wait for an event to occur that influences the movement of the forex market, such as the release of unemployment rates, or interest rate announcements. This increases the potential rewards, but the downside is that the risks are also maximised. It is safer to trade the most liquid pairs, at the busiest times of day.

 

There are numerous strategies for scalping. One of the most common is to study support and resistance trends, on a short time frame rather than a moving average. The trader will attempt to buy in a support zone and sell in a resistance zone.

 

A more ambitious trader may look for statistical anomalies to take advantage of, for example; the time of day, or day of the week, could cause very brief periods where the chart patterns top out or pull back. A riskier strategy is to take a position in the opposite direction of a trend and wait for pullback. This is known as countertrend trading.

 

Average True Range (ATR)

The ATR is a type of technical analysis, used by forex traders as a market indicator. It measures market volatility from a series of indicators over a 14-day moving average. It originated as a method used in commodities trading, but it is now also widely applied to forex trading.

 

It is important to know that ATR only measures the market volatility, and not the prices, so it should be used in conjunction with other indicators. When determining how to fix entry and exit points using ATR, an experienced trader will calculate the risk to reward ratio.

 

Short term traders may prefer to use a five-day period or less, as ATR can be used with any timeframe. A stop-loss order should be set at just higher than the ATR. If there is a large ATR, then this means that the market is highly volatile, and the wider the range between the entry point and the stop loss order need to be, to secure a realistic profit margin.

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How To Set Achievable Goals As A Forex Trader

Forex trading is an exciting and potentially lucrative world. However, if you jump straight in with nothing but enthusiasm, you may soon become discouraged. To avoid this, the key is to set out some manageable goals before you begin. This will help you to see the bigger picture, and handle any blips along the way.

 

You may think, well my goal is to make as much money as possible! While ultimately of course, this is why anyone engages with forex trading, you will need to take a strategic approach to give yourself a realistic chance of becoming successful. Simply chasing the dollars will lead to sporadic results at best.

 

Planning is key

Think of the well-known SMART acronym beloved by line managers up and down the country: it stands for Specific, Measurable, Achievable, Relevant, and Time-Bound.  This framework helps you to pin down exactly what you want to accomplish and why, how you will keep track of your progress, and to set out a timescale.

 

In short, your goals should be a reality-check that will set you on a successful path.

 

Avoid setting numerical targets

Novice traders often make the mistake of telling themselves that they must make a certain percentage each week or year. However, experienced traders avoid setting such inflexible goals, as they know it might push them into taking damaging risks. The key is to understand when the opportunity to make a good trade is there, rather than press on regardless.

 

Instead, focus on defining your risk parameters, decide which markets you will trade, determine your position size, and have a solid plan for your entry points and exit points. Keep up with current affairs, as the foreign exchange markets are strongly influenced by wider geopolitical events, and the level of demand for certain commodities.  

 

Once you have your strategy in place, avoid the temptation to deviate from it, or make major adjustments as you go along. Having a consistent approach, and not being too swayed by failure or success, is the core philosophy of any successful trader.

 

Start small

Unless you already have a background in financial dealings, you are unlikely to be able to make a living out of forex trading straight away. The good news is, it is perfectly possible to fit amateur trading in around your day job. In fact, this is how the majority of forex traders operate in 2022!

 

By being patient and learning the skills of forex trading, many people find that they can handsomely top up their monthly salary. For some, this will eventually lead to a full-time career as a forex trader, but jumping in with both feet is best avoided. Small steps, risking only small amounts per trade at first, is the wisest strategy.

 

Remember, because the forex markets operate pretty much 24/7, and peak times are between 8am and 9am, trading can be fitted in around another job. Be disciplined in your approach and commit yourself to trading on a regular basis, rather than dipping in and out. You will soon build up your experience and confidence over time.

 

Work out your risk tolerance

If you do nothing else before you start trading, you MUST determine your risk tolerance! This means deciding what the maximum amount of money is that you are willing and able to lose on each trade. Be honest and realistic: you don’t want to end up compromising your ability to pay for life’s essentials, or end up getting into debt.

 

Work out what your disposable income is: the amount of cash you have left over each month after paying the bills, mortgage, and all your other regular outgoings. Ask yourself how much of this surplus income you could comfortably afford to lose.

 

A small amount of capital is no barrier to entry, as many brokers offer instant forex funding with high leverage. This means that you can buy currency lots for a fraction of the represented value. This is why the potential for profit-making is high, but it comes with risk. You should trade with only a 1% or 2% margin at first, to mitigate against loss.

 

Remember that even experienced forex traders make losses sometimes, and it will happen at some stage in the game. Accepting losses without seeing them as evidence of irrevocable failure is all part and parcel of becoming a successful trader! The trick is to operate within well-defined parameters, so your risk is always managed.

 

Get to grips with market analysis

High-achieving forex traders learn to read the markets, as this helps them to see when good opportunities are present. As a beginner, it is simplest to stick with the major forex pairs, such as the US dollar and the Euro (EUR) or the British pound (GBP).

 

Other pairs that are most frequently traded include the USD/JPY (Japanese Yen), USD/CHF (Swiss Franc), USD/CAD (Canadian Dollar), and USD/AUD (Australian Dollar).  Avoid currencies from emerging markets until you have more experience, as they are more volatile and carry a greater level of risk. 

 

Market analysis can become quite detailed and complex, but you do not need a degree in economics to get to grips with the basics. If you are a complete newbie, at least make sure that you understand the major factors that influence exchange rates.

 

Differentials in inflation rates are a strong indicator in currency values. Put simply, a lower inflation rate means a rising currency value, because the country can afford to buy more commodities for less than a country with a higher inflation rate. There is a strong correlation between high inflation and the depreciation of a currency.

 

Strongly linked to inflation are interest rates. If interest rates, which in the UK are set by the Bank of England, are high, then the foreign exchange rate tends to rise, as overseas investment looks more attractive. However, the advantages may be offset by a high rate of inflation.

 

If a country has heavy public debts, then it is more susceptible to high inflation, and less attractive to foreign investment. A country’s debt rating can be tracked by following a credit rating index provider, such as Moody’s or Standard and Poor’s.

 

Another factor to keep an eye on is the current level of demand for a country’s products and services. This is sometimes expressed as the terms of trade. If the value of a country’s exports is greater than the price of its imports, then the terms of trade, and therefore the value of the currency, will be favourable.

 

There are many other variables which can influence exchange rates, and it is nearly impossible to track all of them at any one time as an individual trader. However, being aware of the major ones will help you to make good trading decisions. Even just picking one, such as the relative interest rate between two countries, is enough to base your strategy on.

 

Keep track of your progress

To check how well your strategy is working, it is best to review your progress after a certain period of time. This will allow you to fine tune your approach, and keep ahead of the fast evolving world of forex trading.

 

Keep a journal of all your trades, which will allow you to build up a picture of how often you trade, how successful each trade was, which currency pairs perform best for you, and what kind of time frames you are operating in. You can either track your progress in a hand-written log, or use an Excel spreadsheet.

 

Spend some time at the end of the month reviewing your records, and try and identify what your best results have in common. If you have had a string of unsuccessful trades, can you pinpoint what the reason is for this? This will strengthen your understanding of trading, and put you in a better position going forward.

 

Know where your limits lie

In forex trading, less can be more. If you continue to increase your positions for the sake of chasing higher returns, you are likely to make decisions that are influenced by your emotions, rather than based on fact and logic. If favourable conditions are not present, learn to curb your impulse to carry on. The wheel will soon turn.

 

If you have an impatient and impulsive personality, it is strongly advisable to learn about the psychology of forex trading before you begin. This is because it is easy to get caught up in the natural human greed for profit, and let your heart rule your head. This does not lead to good results. Of course, being over-cautious is a barrier to progress as well.

 

This all ties in with having a sound trading strategy and sticking to it, so that you are not tempted to be over or under-confident. Knowing when to enter a trade is important, but perhaps more important is knowing when to exit a trade. It can be tempting to hang on as long as possible, but this is a high-risk strategy in the fast-moving forex markets.

 

Do your research into stop-loss techniques, and you will be well on your way to being a successful forex trader!

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DOES MONEY MANAGEMENT AND LEVERAGE MATTER?

Leverage is one of the most important tools for forex trading. If you have proper knowledge about leverage, small amounts of it can work for you and help you expand your win rate if you are already trading effectively.

 

When using leverage, money management can only minimize risks up to a certain extent. You need to do proper analysis for trading or else there’s no way to avoid all the risks involved in practical trades. The same applies to trading within a prop firm. There needs to be a balance of trading skills and risk management. When a trader is proving to find accurate entries with a good profit factor then leverage can assist with increasing the profit amount.

 

Build your trading plan

 

A strict trading plan can help make your trading easier by acting as your decision-making tool. It can also help you maintain discipline in the volatile forex market. The purpose of this plan is to answer important questions, such as what, when, why, and how much to trade in any given scenario so that you are never left unstuck. Your forex trading plan needs to be personal to you. It’s no good copying someone else’s plan because that person will very likely have different goals, attitudes, and trading biases. They will also almost certainly have a different amount of time to dedicate to trading which will play a big factor in how you will trade.

 

Impatient trading with leverage

 

Money management is vital for every trader, and one way to make a return in trading is through leverage. However, this can become a problem if you don’t know how much risk you’re willing to take on or are not disciplined enough. Higher risks generally translate into higher returns, but some consequences could lead to disaster in either scenario. In prop trading terms that could mean a trader wants to hit their profit target very quickly or get that next pay-out as fast as they can.

 

Popular leverage in trading

 

Forex in general has always been an attractive investment option because it provides traders with some of the highest levels of available leverage when compared to other markets. It’s also important for traders to understand what leverage means to them, how it works, and why they need it if they want to be successful at forex trading.

 

In Forex, generally popular leverage is 1:100. For every pound that’s in your account, you can trade a hundred times that in terms of value. It seems like market makers offer such high leverages because they know that the higher the amount of risk a trader has, the greater their chance to lose it all – but then again, they wouldn’t give out so much money without any conditions attached!

 

Leverage within a prop firm

 

In the prop firm industry, it is also seen as a con for prop firms to only offer low leverage. Many popular traders have actively promoted firms due to the fact they offer high leverage meaning traders can aim to make quicker and larger pay-outs over long term solid trading performance. Which would you prefer, short term fast profits, with account termination after 1 month? Or consistent earnings over many years and no-account termination? We are not saying aggressive or high-risk traders necessarily want an account termination, but it can be difficult to maintain longevity when using large amounts of leverage.

 

What leverage is best?

 

After many years of studying and testing, we found that higher leverage usually causes the most problems when it comes to trading properly with consistency. Here at FTUK, we provide traders with either 1:10 on our low-risk programs or 1:30 on the aggressive style. We have heard from many traders that this is very low and, if a trader needs more leverage, then they are usually doing something wrong in their trading or are expecting things to happen faster. The lower the leverage, the longer it may take to reach a certain % profit goal, but the more realistic the journey will be.

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