Forex Trading 2 – Economics and Forex Trading
Rohit Malhotra | Mar 22, 2020
This is Part 2 of an audio podcast on a guide to forex trading, where we talk about the essential tips and tricks to keep in mind to maximize your returns.
Are you looking to jump into Forex trading? You may feel that some experience trading in investment markets may have you prepared for the world of Currency Markets.
Keep that confidence! You’ll need it. But make sure to get aboard this series of essential tips to prepare you for the adventure ahead in the Foreign Exchange Markets.
Welcome back to the Mindwealth Audio Visual MWAV Podcast. I am Rohit and we’re going to continue our series on Forex trading today.
In the last podcast we talked about the why and how of forex trading. Why should you go into currency trading? How should you go about doing it?
These questions were meant to make you think, and they’re not meant to be easy to answer immediately, so take some time to mull them over. Before you do though, let’s get to the tips for today’s podcast.
It’s harder said than done, but be smart.
Tune out the noise. Ignore self-styled gurus and investment firms who claim to make money with 90% success rate.
Odds are, if they knew how to make money with such an incredible success rate, they would be busy using their I’m-gonna-make-you-rich talent in one of the world’s top financial institutions or hedge funds.
Trust me when I say this – I have known traders who are brilliant and still get occasionally burnt while trading currencies!
A trading model that makes money 6 or 7 times out of 10 is both more realistic and more credible than an advertised 90% realized success rate.
A good trader can be very profitable by making money in just 5 out of 10 trades by intelligent risk management.
Why am I so sure of this? Because I have spent 22 years working in the financial markets worldwide. I’ve traded Forex and other securities, running complex financial businesses, and developing risk management products for some of the world’s biggest institutional and corporate clients. In my last job, I ran a team that consistently made over a billion USD of profits annually. I did this while helping the firm’s clients manage their risks.
Look for credibility over tales of wild success. More often than not, credibility and reliability lead to amazing returns while these wild tale-tellers end up eating their own words or disappearing into the wind with your money in hand.
This brings us to our next point. How do you know what might be credible or reliable? DO YOUR RESEARCH before you start trading!
Watch before you leap! Try to find someone trading FX that will let you watch them, or share their strategies for turning a profit. The more people that you learn from, the better of an idea you get about what you might pursue as a strategy.
If you are a newbie or do not have a background in finance and economics, it doesn’t hurt to spend half an hour a day reading fundamental Macro and Micro Economics.
One excellent book I can recommend is the classic ‘Economics by’ Paul A Samuelson and William D Nordhaus. I’ve included the link in the description of the podcast.
Economics’ relevance to FX trading would include Interest Rate levels – both the absolute levels of interest rates and the relative differentials between the two countries, purchasing power parity, monetary policy, and fiscal policy in the countries whose currencies you wish to trade.
To learn all this, you can turn to a large number of online, often free resources or have fun plowing through zillions of books. Do bear in mind that just like Forex rates, parameters like Interest Rates can fluctuate on a month-to-month basis or even a daily basis if you look at the futures markets.
Economic data releases in Europe and America include factors like unemployment, GDP growth rates, inflation, retail sales, non-farm payrolls, ISM etc.
Name the measure and you will likely see the data listed… the list is virtually endless!
Some measures, however, are more important than the others. There is no formula. This stuff comes with experience. Avoid anyone toting an all-in-one list or magic formula.
There is no one way to start Forex trading. However, knowing the basics and background of the market are invaluable tools for discerning your own path.
Make sure to be smart. Consider every move in detail, even the ones that look unappealing at the start. You may find your golden goose.
Then do your research, maybe that goose was made of fool’s gold all along. It pays to know economic fundamentals, as you’ll be surprised at the number of people failing to understand basic micro and macroeconomic concepts.
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I’m Rohit, and I’ll see you in the next one.