The Road to Forex Trading

Michael S. Young  |

The Forex market represents $5.3 trillion in trading volume per day, far greater than the equities and futures markets. In spite of its size, however, many people still do not even know it exists. As the word begins to get out, slowly but surely, more and more aspiring traders around the world are becoming eager to jump in and earn profits.

Once you’ve decided to try your hand at Forex trading, where do you start? In my view, it is best to open a demo account at a retail broker and cut your teeth beginning with paper trading. At first, there is a good chance you will lose some of your imaginary money and that’s a much better way to begin learning the ropes than losing your rent money. So have fun, keep your emotions in check and don’t get too carried away with the mouse clicking.

Before trading real money, be sure you know and understand the systems and techniques being used by professional traders. Learn the lingo and fully understand terms such as margin call and stop-loss contingencies and be 100% certain you are up to speed on regulatory issues and requirements so you remain in compliance at all times.

Understanding Leverage in Forex

When trading Forex, you’ll need to use leverage – credit extended to you by a broker - due to the fact that price deviations are small. Using a small amount of leverage reduces the risk of a margin call but also reduces the amount of potential profit. Because the broker is letting you essentially borrow money to trade, he also has a say in the level of risk you take and can buy/sell at his discretion. Therefore, it is very important to check broker references and be sure there are no red flags with respect to integrity and reputation.

Fortunately, for the most part, professional and amateur traders all have access to the same information. There are a number of different trading platforms and all of them include some form of real-time charts, tools for fundamental and technical analysis, trading system support and other research offerings.

At first it is wise to incorporate both fundamental and technical analysis and determine how best you can use this high-level information to determine entry and exit points for your trades based on your strategy. If you find out you have a knack for trading and an “edge” in the game, then you are already ahead! Remember that you need to maintain a defensive posture and be right more than you are wrong to succeed at trading. Experienced traders have many years of experience weathering Black Swan events and the true tumult that is, the daily market.

How to Be a Better Forex Trader

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Today, there are a number of algorithms available to savvy Forex traders that can help ease the decision making process and eliminate the temptation to deviate from the plan. Empirical data goes in and smart decisions result from it! Typically, 90% of Forex trades are intra-day but macro moves are often required as well, and for many traders they are preferred for the larger gains that result when a positive result is achieved. Overall, strive to have a conservative, smart stop-loss in place so that you are not bleeding your account dry while chasing a sinking ship.

You may determine that the Forex market has huge potential but that you need outside assistance from a professional trader or manager to maximize success; or more importantly to limit your risk. With your new-found knowledge you’re in a great position to interview managers and identify the one whose style and strategy best fits your investment requirements. One of the most important considerations when seeking to invest with a quantitative-based manager is to understand and define the breadth and depth of the management team.

While algorithms and/or artificial intelligence enable technical trading managers to operate trading systems that should in theory be superior to the best of human traders, a superior trader(s) should absolutely be involved in the functional architectural design plan in order to insure that the systems are designed to work to optimum potential; more importantly are defensive in nature. While “quants” have an important role in the design of and the formulation of proper mathematical programming, strong returns with less and less risk is an ideal situation that is not a quant based concept, rather a systematic design plan based on an amalgamation of years of experience. Experience with adverse situations is critical when developing algorithms and/or artificial intelligence so that the systems know how to react when mathematics should be correct but are frankly, wrong on a case by case basis. How does a quant defend against a black swan event if the individual has never seen one, let alone many, in a lifetime? Experience is the key.

In our view, the time is now to invest in Forex as advanced artificial intelligence and algorithmic trading systems offer a winning opportunity for investors and a way to mitigate risk. The benefits of working with a firm like Mediatrix Capital is the firm’s ability to offer a pathway to working with advanced technology while incorporating over 40 years of trading experience.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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