Online trading spread fast with the rise of the Internet. Nowadays, anyone with an Internet connection can easily open an account with a Forex broker and start trading.
But this is an industry where success is scarce. Truth be told, most traders lose money in the market – at least at the beginning.
Because of that, education is the key to trading success and, ultimately, financial freedom. Traders, therefore, strive for enhancing skills through Forex education in South Africa or any other part of the world.
The process is similar.
There are many areas to tackle, but if we are to name two mandatory before starting trading, they are market psychology and market participants.
Market Psychology
Markets move in their rhythm and pace. Also, they are illogical most of the time.
To give you an example, think of what happened in July 2023 when the inflation report for June showed the CPI inflation at its lowest point since April 2021. Inflation is part of the Federal Reserve’s mandate, so the report moves markets.
But the Fed paused the rate hiking cycle in June, and the latest NFP report was the first one to miss expectations in 15 months.
Yet, the market expects more hikes from the Fed.
So as a trader, what are you supposed to do? Lean with the market and expect more rate hikes, or start betting that no more rate hikes are coming?
In other words, understanding the market psychology is not easy. It is often very frustrating to see the market moving in an opposite direction than what it is already priced in.
Also, the trader is its worst enemy.
Greed and fear are two factors responsible for the low rate of success when trading markets. Therefore, before starting trading, make sure you know yourself better than anyone else and are aware of both your limitations and strengths.
Market Participants
Another area to focus on is related to the other market participants. Many traders are surprised to find out that other forces move the market more than retail traders do.
In fact, retail traders contribute to the smallest fraction of the daily FX volume.
Other market participants are far bigger and have much more resources at hand. For example, endowments.
Endowments invest their funds in the long run and have huge resources. When they move from one asset to another, they usually move market prices too.
Also, consider insurance companies. Such companies have a designated investing department designed to profit from market movements.
Commercial and central banks also participate in the global financial markets. They buy or sell currencies, stocks, bonds, options – anything one can imagine, dwarfing the retail traders’ positions.
To sum up, as a trader, you would want to be aware of the other market players involved in the trading process. Who is taking the other side of a trade? After all, for every sell order, there is a buying one.
