Why bank traders are successful at forex trading

BY OLUMIDE ADESINA

Forex trading is the buying and selling of currencies, making it a popular investment opportunity for individuals looking to make a profit. However, forex trading can be complicated and overwhelming for beginners. This is where the concept of bank-like forex trading comes into play. Banks are one of the largest participants in the forex market and their trading strategies can be utilised by individual traders to make a profit.

The first step to trading forex like a bank is understanding the market. The foreign exchange market is the world’s largest financial market with a daily trading volume of at least $7.5 trillion. Currencies are traded in pairs and the price of a currency pair is determined by the supply and demand of the currencies within the pair.

Much like trading stocks, the goal is to speculate on future price movements, not to exchange currencies (much like you exchange money while travelling). Like stock traders, forex traders will try to buy currencies that they believe will appreciate relative to other currencies, or let go of currencies that they believe will lose their purchasing power.

The forex market is dominated by banks, which use their knowledge and experience to close lucrative trades. Access a wealth of information including economic data, political news, and market trends. Individual traders can also access this information through news sources and economic calendars.

Bank traders make the most stable profits in forex trading. Then you may wonder how banks are making so much profit and retailers are losing so much. The answer lies in how banks trade foreign exchange. Also, if you know how to trade forex just like a bank, you increase your chances of making a profit from forex trading.

Only 5% of all forex traders are bank traders; the remaining 95% are speculators. However, more critically, bank traders account for 92% of all forex trading.

No need to sit there all day making your own trading decisions. In most cases, they act only as agents for bank customers. This is commonly called “clearing the flow”. They may make thousands of transactions a day, none of which are for their own books

Banks also use price promotions to make profitable trades. Price action is the study of price movements on a chart and is used to identify patterns and trends. Banks use price volatility to identify areas where the price of a currency pair may move in a particular direction.

LEARN TO MANAGE RISK

As with banks, risk management is an important part of forex trading. Banks have developed risk management strategies to minimise losses, and individual traders should also develop risk management plans. A stop-loss order is an order to sell a currency pair when the price drops to a certain level. This helps limit losses if the trade doesn’t go as planned.

Another way to manage risk is to use appropriate position sizes. Position sizing uses your account size and risk tolerance to determine how much to invest in a trade. As a rule of thumb, you should not risk more than 1-2% of your account balance on a single transaction.

In fact, they only make two to three trades a week on their trading account. These deals will be evaluated at the end of the year to determine if they deserve additional bonuses and rebates.

They are highly methodical and only decide to trade when the technical and fundamental conditions are ideal.

They hardly ever spend more than a few hours in front of a computer. You ought to adopt the same strategy. If you have a thorough professional capital management system and comprehend the technical and fundamental features of the market, it is doable. Numerous traders have attempted to replicate this strategy, and I have seen a ton of books on “beating the bankers”. The key is that you want to join them rather than defeat them. You are trading with the market rather than against it in this way

WAYS TO GET EXPOSURE IN THE FOREST TRADING MARKET

One way is through the spot market, which is a real-time exchange rate determined by supply and demand in the currency market, where currency pairs are exchanged.

Forex traders can enter a binding (private) contract with another trader to set an exchange rate for an agreed amount of currency later, instead of making an immediate trade in the forward market. Similarly, a trader can choose a standardized contract to buy or sell a given amount of currency at a specific exchange rate at a specific time in the future. This is done on an exchange.

Another way is Foward and the Futures, which are markets that are primarily used by forex traders who want to speculate or hedge future price movements of a currency. The exchange rates for these markets are based on what is happening in the spot market, which is the largest forex market and where most forex trading takes place.

In summary, bank traders are successful in forex trading because they have access to large amounts of capital, sophisticated trading platforms, real-time market data and expert advice. You will also gain a solid understanding of the fundamentals that drive the Forex market and the technical skills to analyze price movements and identify profitable opportunities.

Adesina a France-born Nigerian, a certified investment trader, with more than a decade of working expertise in investment trading.

Views expressed by contributors are strictly personal and not of TheCable.