The Best Binary Options Trading Strategy For An Avid Beginner.

Binary options trading strategy is probably the most attention seeking topic in this Industry. Recently, speculating with Binary Options market has become, somewhat, a very popular thing, especially for people who are searching for diversity in their investment portfolios. The reasons for this trending popularity lies in the minimum entry level requirement, and in its trading execution simplicity. So, for the hordes of newcomers that flock to this “easy-money” opportunity the first question to be asked, other than: “What is the best binary options trading strategy?” is: “Is it even legal…”

Is Binary Options Trading Legal?

Almost in all countries Binary Options are legal, however, not in all countries they are regulated! There is a big difference between illegal and unregulated. In some countries, it is a Legal requirement for a binary broker to have a license along with other country specific credentials. With others, it is merely a matter of county registration as a limited liability company, and you are good to go.

Hence, when dealing with binary options brokers it is essential to know what regulation, if any, and the legal status the house actually has. This could vary based upon country-location, as well as its jurisdiction. The majority of binary trading restrictions relate to the Investment limitation outside the country you reside in. Basically, some countries restrict the amount of capital their citizens can transfer overseas. Consequently, placing funds with a binary broker is considered as an overseas bank transfer.

 image of Illegal and Legal sign which connects to binary options trading strategy concept

Certain countries have greatly restricted the Binary companies to have an easy-access to their clients in order to shield their citizens from an inherited risk associated with these type of instruments. There are governments that even are blocking these type of sites if they do not properly state the nature of their business.

For example, if such site is to be licensed in the U.S; then it would have to be registered with the CFTC and follow the rules of online gambling. Therefore, in the U.S. the only Binary broker that is allowed by the CFTC to accept North American clientele is – NADEX. We’ll be covering more about this broker, later on in the post, so stick with us and read on! Indeed, there are plenty of other brokerages outside the US that may still do business with Americans, then again, the risks are high and fall on the trader’s shoulders.

Trading with Binary Options for the average retail trader essentially began in 2008, when the U.S. Securities and Exchange Commission’s approved these type of Investment vehicles. Since then this type of trading has gained an immense popularity, for the reasons discussed, below.

Yes, one can argue and say that in fact, binary options have existed many years prior, but these instruments were available only to Institutions and large accredited speculators through the OTC (Over The Counter) market.

Simply put Options, by itself, are financial instruments, the derivative Investment vehicles, to be exact, which allows you to speculate in online markets. Dealing with binary options, simply means an option trading where we have two potential outcomes.

It’s been said, the difference between Forex is that binary options are simpler and trading involves lesser risk with higher payouts. However, in reality it is quite the opposite, you have lesser payouts as opposed to winning returns.

How does binary option trading work?

A speculator buys an option contract, then at the expiration of the holding period, if the option is in profit, it produces more or less 80-85 % return on the Investment. In case when the contract is not profitable, the speculator loses the whole sum of the invested money. That is not to say, you can’t make money with them, it’s just there are few nuances one needs to be fully aware before jumping on the binary option bandwagon.

Binary options are generally easy to trade, even for unskilled investors. Also, trading  with these financial instruments involves a minor starting capital, normally, no more than a few hundred bucks. The simplicity comes from the selection mechanism; you have to be right on direction for the chosen time period. Basically, you only have to be right with the two features – direction and time.

After the chosen from you expiry time ends, if the current price is above (for the CALL) or below (for the PUT) your entry price, the trade is considered as a winning (IN THE MONEY) and you get the payout. Binary option, which is a derivative, could be traded on any financial instrument: stocks, commodities, currencies, indices, metals etc. Most commonly used binary option forms are: fixed-return, or high-low contracts.

 

Can you make a lot of money trading binary options?

Well, this is not such a simple question. Of course, we have people that make money with them, and we also have the ones that lose, and I mean lose, royally. The first most important step you should take, when trading binary options, is to find a trusted Broker! Let’s face it, even if you have binary options trading strategy that allows you to profit in the market, what good would it be if you’re unable to withdraw your money from the account?

hundred dollar bills that represent a binary options trading strategy

There are so many binary options scam brokers out there, you won’t believe it until you’ve read some horror stories from the fellow traders that have been scammed around the world.

Typically, scam-my brokers have demo accounts, which are provided for free, that are out of this world. The order execution and the overall speed are so good, you simply never loose in demo accounts.

However, once you switch to a real one, then all the funny stuff starts to happen; slow order execution, re-quotes, the different price entry that may vary significantly from your original one, and many other dirty tricks that these brokers have in their arsenal.

Remember in the live account, you are working with slower signals, and also many trades could be rejected until you get the price that is far from with what you’ve planned on getting in.  The trading platforms are manipulated from their back-offices, and they have nothing to do with real- time markets. Also, they are very skillful and verbally trained in keeping you from trading anywhere else. They offer you fat bonuses on your deposits, and have all sorts of excuses just to keep you trapped in their domain.

So, going back to our question: “Can you make a lot of money trading binary options?” The simple answer is – NO, unless you have a Broker that will not do the things we’ve mentioned above. In essence, this should be a twofold answer; you have to have a trusted broker, and you have to have a profitable binary options trading strategy.

A battle tested strategy, with good odds and with more, or less decent consistency. Hence, if you put these two pieces of the puzzle together; the trusted Broker, and the time tested trading strategy, only then we can talk about making some sort of money with trading binary options.

Hopefully, after reading this post you’ll be able to trade with the trusted and regulated Broker, and have a consistent binary options trading strategy to profit with. Actually, this is the primary mission of this post, to align you with the proper broker and with the strategies that work.

 

How do you successfully trade binary options?

image of a monkey that is thinking of how to learn a binary options trading strategy

Even though with so many things that play against you, when trading binaries, there are still plenty of people that make money by working smart and by following the rules of their system. The main takeaway with the binary options is, risk control. Since a trader can never lose more than the original amount invested, on any given trade, then everything boils down to controlling the risk.

Statistically speaking, a speculator has a 50 percent chance of being profitable on any trade, whether with a going long (call), or a going short (put) contract. Binary options work with the same laws of probability as any other event that has two possible outcomes.

Therefore, in order to break even you would need to be right with other half of the time. You only would need to be right on the other 50 percent. Sounds about right, isn’t it? However, this the wrong assumption, because your winnings in binaries are capped. You win always less than your initial investment.

Let’s take a 100 trade sample and assume that you’re going to bet 50 dollars on every bet. What will happen is the following:

If you are wrong on your bets half of the time you would lose 50 x 50 = 2500. And if you are right 50 percent of time, then you would win 50 x 40(50 times 80% of the return is 40) = 2000. The 80 – 85%  return is probably the best there is in the Industry. Mathematically, even with 95% profit margin you would still lose: 50 x 47.5 (50 times 95% is 47.50) = 2375.

Therefore, in order to make money trader needs to find an edge with his binary options trading strategy. Which means, to be right on more than 50 percent of the time. Depending on the profit margin that broker is willing to provide, one would need to maintain 60-70% win ratio. Meaning, you would need to be correct on your trades 60-70 percent for any given time period.

To conclude, the whole game is structured in favor of the brokerage house. But this doesn’t mean, you can’t make money with the binary options. You just have to know your odds, have a profitable binary options trading strategy, and deal with an honest broker. Bottom line, you would have to beat the law of averages, win about 65% every time in order to make any kind of returns in the long run.

 

What is the best binary options trading strategy?

group of people with the prize that have won a binary options trading strategy competition

Before we single out any particular strategy, first lets talk about what kind of strategies are available to the retail traders. Below is the short list of the strategies that have gained popularity since the binary trading inception:

News based strategies  – (Momentum driven)

Technical Analysis strategies – (Pattern driven)

Time Based strategies  – (Data driven)

We are going to discuss all of them, however right from the get-go we are admitting, our favorite strategy is…Time-Based. OK, let’s get to it and unveil cons and pros for all of them.

News based strategies:

Usually, this type of trading is a short-term speculation, which is heavily driven by Momentum that is generated from the news events. News driven trading, is probably the most common approach for newcomers, because of its simplicity in preparation and execution.

Essentially, it requires focusing on what is happening around the news, such as fundamental releases provided by a company or a country. Announcements made by a government officials about the state of the Economy or the Industry; any changes, new developments, agreements, political and social changes etc.

There is a whole bouquet of things that may influence changes in the price of an asset. Many times positive news makes the price to increase (calls), while negative news creates opposite reaction, to decrease (puts). The basic requirements of this binary options trading strategy are, to know what news to pay attention to, and when to expect it. Most binary brokers supply you with the economic calendar so, knowing ahead of time what to trade and when, is not a problem.

For example, if you trade binaries on currency pairs, then Non-farm payrolls on the U.S. dollar is the biggest news event for that purpose. It happens on the first Friday beginning of every month. Knowing this, you can prepare yourself in advance for the event and trade it with no hassle.

However, the most important aspect of this type of speculating is to know what the market reaction would be if certain numbers or particular info is released. Yes, it is helpful to know in advance that a company’s earnings are coming out, let’s say, in a week. That way you can make a directional play by predicting the outcome, but it is a lot more beneficial if you knew what the market expects from that report.

Unfortunately, it is not always this black and white. Meaning, it is not always like this, the price moves up on a positive news and moves down on a negative. There are hidden market dynamics that make it hard to predict which way the asset is to follow after the release.

For example, in currencies, an agency releases a major economic report showing an increase in consumer spending, which is very good for the economy. Numbers are really high, it is indeed, a positive news, you would expect the market to react positively. Nonetheless, the revised numbers for the previous period showed a huge discrepancy between the actual numbers. This alone was enough, to negate the current positive numbers and cause the market to sell off.

The market might recover later on, but this was enough to cause the damage in the short-term. This means, the markets may fall, even though the current event was labeled as positive. In the currency market this happens all the time. Additionally, it is challenging to predict for how long a movement will continue and how far will it go.

Pros.

It is easy to follow and implement, because of the news events, especially with the news calendar.

Easy to learn, because there are only a handful of news that really move the markets.

Cons.

Unpredictability. Too many variables that could influence the outcome.

 

Technical Analysis strategies:

Speculating based on technical analysis provides a viable alternative to news driven strategies. Mainly, with binaries, it is a common approach to use price patterns for the directional plays. This type of strategy attempts to forecast the movement of an asset price irrespective of what is taking place in the wider market.

The strategy requires focusing on how the price of a selected asset moved in the past. By processing this information it is possible to single out technical chart patterns, such as: triangles, pennants, flags, channels, engulfing patterns, which can be used to predict future price changes. To simplify, this approach determines the current conditions of an asset and identifies if the price should remain mainly the same or if it will most likely rise/fall based on past performance.

For example, let’s say, you have spotted a triangle pattern, on H-1 (hourly timeframe), which in fact appeared to be a bullish one, because it came from a solid double bottom along with a strong bullish impulsive move-up. Hence, we have a triangle that sits on the top of the bullish move-up. Since the bullish triangle is a continuation pattern, meaning it will continue the up-move, you’ve decided to go for a long play. You’ve decided to opt-in for the Call option. Now, the only thing left, is to decide the time period of the contract.

Don’t get us wrong, there is much more to this strategy. Nevertheless, the general concept remains the same; making trading decisions on future outcomes that are founded on technical chart patterns.

The general problem with the chart patterns is that, sometimes, during the pattern formation, you are going to see what you wanted to see. You are going to finish the pattern in your mind, while the actual pattern will be a completely different thing by the time it’s finished. For the “fast handed” traders this could be a big problem, since the whole trade direction will be selected wrong. Basically, there will be times when you are going to see things that are not there on the chart.

Pros.

Statistical advantage (some predictability) that comes from the technical patterns.

Improved odds, because of the inherited statistics that come with the patterns.

Structured approach to the market; no emotions are involved during the trade selection, you know what to look for.

Cons.

Takes time to learn the patterns.

Takes time to identify the patterns on the chart.

The mind can, and will play some tricks on the trader.

 

Time Based strategies:

This is a membership to the Binary Signal club, where Steve has trading signals for different assets. The signals are generated in the membership area from traders that pass Steve’s rigorous test before even considering releasing them to the members.

Of course, the membership is not free, it had costed him money to put it together, yet alone to maintain it. However, added bonuses that come with the membership put the whole system to another level.

For what it’s worth, hypothetically, you could sign-up just to get the free systems, because you are going to get them every month.* Then, if you don’t like the membership, for some reason, you could always quit and keep the free systems to yourself, for life. These so-called free systems are not some bogus bait-you-in systems.

These are solid trading strategies that have worked in the past, because of the record, and will continue to work in the future.** They come with clear-cut instructions on when, and exactly how to execute the trades.

I’ve personally dealt with Steve’s “bonus” systems since 2010. Well, back in those days they were not bonus at all, you had to pay for those. I remember waiting every month for the FOMC data to be released so, I could trade it through my broker. The ‘End Of The Week Dow System’ is as solid, as it gets; an 80-83% success rate is pretty impressive. Now, one thing to mention, these are not get-rich-quick, and work-all-the-time trading strategies, rather than solid, methodical, slow-growing trading systems.

Here is Steve’s overview of the product:

 

Pros.

Provides signals on different asset classes.

You are not limited in trade selection.

More time to do other things you enjoy. You know the exact time and day, when to pull a trigger.

No more guessing on what asset to trade, and what direction to trade.

No software installation is needed.

Signals can be traded on MT4 platform as well.

 Cons.

The timely trades might be an issue for someone that works, is busy, or unavailable to take trades at a specific time slot.

* With each month you continue with the Lazy Binary Option Signals Service you will get at least one of  Steve’s Simple Trading Systems – 5 in total.

 ** In any market where a potential for profit exists, there exists also a risk of loss.  None of the information provided by davematias.com owners, or the author of this publication, by any means assures that the reader/client will make money.

Now, to address the big question: – “Should I take advantage of a news driven approach to binary trading, a technical analysis approach, or use a straightforward time-based Technics?”

This comes right down to a variety of things, such as, what type of a trader you are: a long-term, a short-term, or a scalper. Another factor to consider, are you a left-brain (analytical) type, or a right-brain (creative) type of a trader. Therefore, the answer is totally different for everybody. The most effective recommendation is to try all of them, to find the one that you’re most comfortable with and the one that adds the most profits to your bottom line.

Also read, Currency Market Exchange: The Things You Should Know Before Considering Forex Currency Trading.

Why Use Binary Options Signals?

Why would anyone entrust their capital to the binary options market’s tips provided by another trader, or a trading robot? For one thing, trading the markets is not an easy thing to accomplish.

If you strive to be a successful speculator, you must spend some time on this activity. You’ve got to implement technical/fundamental analysis, come up with profitable binary options trading strategy, create the set of trading rules on every trade taken.

Such actions can be very time consuming and in our busy world, most people don’t have the time to stare at the charts for six, eight, or ten hours per day. That’s why some people prefer to use option services; Signals or Robots to help them. Simply removing half of the work, which needs to be done in order to produce high probability trading signals.

Lot’s of research effort is required as well, and this only works if you know what to look for. For a newbie, this is practically an impossible task, since experience is necessary to make the right trading calls. And for the experienced trader, the effort and the time demands can be quite discouraging.

Therefore, to skip the steep learning curve and the time demands required to find the right trades, speculators can use binary options signals. The signal provider does all the legwork, including and ensuring that the signals they are generating are profitable. This is a grand convenience, many people can appreciate when facing the binary options trading.

 

What To Pay Attention, When Subscribing To Binary Signals

image of a word "caution" that is connected to the binary options trading strategy

Just because someone has gone through the trouble of creating binary signals it does not guarantee financial rewards on your part. You have to pick your signal providers carefully. Here are some things a careful signal service evaluation entails:

The Wining Rate

This is the most important aspect to consider when choosing a binary option signal provider. The payouts for the most binary options trades are below 100%, which means you need to win much more than half of all your trades still to break-even.

Like we’ve already explained, on average, you have to win more than 55% of your trades to see positive returns from your trading. Therefore, look for signal providers with win rates of, say 62% and above. Still, when someone starts promising 95% and 100% win rate, ignore them, nobody is that good.

How Long has the Signal Service been Operational?

It’s been said: “The things in a short run, might not be the same in a long run.” Meaning, any trade has a potential to be profitable, even the one that is based on a crappy strategy. However, with the time a truly strong strategy will stay the test of time and prove to be profitable. Hence, make sure that the signals you are part of have been up quite for a while, and have managed to remain profitable over the time.

How the Signals are Generated?

Here is another very logical question to ask when using the signal providers. Despite the fact that you are not trading using your own trading setups, it’s still good to know how the provider comes up with them. In this case you’ll have an idea whether the signals are even worth taking. Many signal providers that speak of some “secret-sauce strategies” that they are unable to explain, are best to be avoided.

Is Using Binary Options Signals The Same As Having A Managed Account?

The simple answer to this question is, NO. Using binary options signals is not like having someone to manage your account. With managed accounts, you give up all account decisions to the person that is managing the account. This person makes all the speculative decisions regarding the account. However, when using a signal provider, major decisions are still yours. You can choose what percentage of your account to risk, and when to stop using the signals on your account among other things.

Why Not Trade Automatically Through Binary Option Robots?

Using binary option robots is obviously the most convenient method to receive signals because your intervention is not required. The signals don’t have to come to you first before they can be executed on your account. The signals move directly from the provider and get executed automatically on your trading account by an algorithm.

Basically, all that is needed is an occasional oversight over the signal provider’s performance so that you can decide whether, or not to maintain your subscription. You might think, this is awesome! Why not everybody is doing it, it sounds so tech-y and so easy…

Well, most binary robots outright don’t work! In other instances when they do work over the short period, they kind of force you to sign up with unregulated-scammy brokers, because they have partner relationships with them. Essentially, this means you have a good chance of never being able to get hold of your money.

 

What Brokers To Use When Trading The Binary Options?

image of the NADEX brokerage that is representing a binary options trading strategy school

NADEX:

North American Derivatives Exchange – NADEX is the most trusted, and most importantly, regulated by CFTC  binary trading U.S. broker. Trading on NADEX is different from speculating anywhere else in the world, because of its transparent structure. Each option contract has a price and an expiry, where the option worth zero, or a hundred, creating a binary profit/loss outcome.

With NADEX, the trader is not required to wait for the expiry time, instead one can sell the contract in order to limit the loss. For example, if you purchase an option at 75 and it starts to deteriorate to 50, you can get rid of the contract by selling it without waiting for a total loss at the expiration time. This is the main difference, holding the option contract until the expiration with NADEX isn’t necessary. You can open an account with them for 250 bucks, have no trading minimums. However, you have got to have the capital to cover the max risk on each trade.

Here is the list of all countries that can trade through NADEX:

https://www.nadex.com/why-nadex/account-types

Frequently Asked Questions, check here:

https://www.nadex.com/learning-center/faq

 

In Conclusion:

Speculating in this particular marketplace with any degree of success depends on choosing a binary option trading strategy that is in line with your trading style. To individuals whom have no experience of the binary options markets, but still would like to feel what it’s like to make money, binary options signals may be a viable solution. The same goes for the ones that for different reasons lack, the time or the patience to analyze the charts in order to find solid trading opportunities.

Nevertheless, it is a certainty you have to be very cautious when selecting the signal provider to avoid getting burned. As you may have understood by now, not every signal service is capable of generating positive returns. Even though, we’ve outlined some really good suggestions to help you choose the best signal service, the whole process would still require some researching effort on your part.

On the other hand, trading binary options effectively isn’t just about having the right binary options trading strategy. For example, if you’re unable to manage your emotions you will sooner, or later make costly mistakes. Accepting the fact that losses are indeed an unavoidable part of this business should force you to enhance the money management part of your trading, as well.

In our opinion, the best way to speculate this market is through proper education, or at least selecting a recommended signal provider by the someone you know, or trust. You need to do a thorough research as the whole Industry is untrustworthy! You have more unreliable brokers and products than reputable ones, so proceed carefully and try not shed your trading capital.

Currency Market Exchange: The Things You Should Know Before Considering Forex Currency Trading.

The currency market exchange, or FX – the foreign exchange, is the worldwide financial market for forex currency trading and operates through a floating exchange rate system. It is the largest financial market in the world, with a daily turnover of over 5.1 trillions.

The currency market itself is an auction-based, decentralized International forum. It also is the target of many a would-be home trader’s hopes and dreams of getting rich quick. Before trying to make a run on it, it would be useful to understand more about how the whole currency market exchange actually works.

It exists as a network of independent financial institutions in various locations around the globe acting as trading centers between currency buyers and sellers worldwide. The main function of the currency market exchange is to enable International trade and Investment.

Governments and businesses buying, or selling products and services from a foreign country need to pay for those transactions and convert the profits into their own currency. This accounts for only roughly 7-10% of daily trades. The remaining 90% are for-profit, speculative trades.

image of the currency market exchange turnover graph

Until only recently, individual retail traders were scarce in the forex currency trading.

The Internet trading evolution has brought the FX market within easy reach for the retail investor. This has also brought the forex currency trading, into the mainstream and beyond the realm of the traditional traders such as; large banks and financial institutions, governments, international corporations and hedge fund operators.

An individual’s ability to speculate in the world’s largest and most liquid financial market has brought with it the need for accurate information on how the FX market operates. Many investors are actively seeking the best way to use this intriguing, but often confounding market to diversify their investment portfolios.

For an individual investor, familiar with trading in the regulated Equity markets, the currency market exchange is not akin to anything they’ve encountered before. There is no formal governance of the market, no international oversight, clearing house, or arbitration method for disputes.

The Forex functions successfully as a self-governing market mainly, because member Banks have to keep up a cooperative competition. This works very effectively to regulate and control the market.

image that explains the currency market exchange dynamics in details

The Forex is an Interbank, over-the-counter market with no central, regulated exchange, or trading floor. Transactions and trades take place over the phone, or via the Internet between two parties. Unlike the Equity markets, no effective insider interference is possible for any length of time due to the sheer scope and decentralized nature of the Forex Currency Market.

The currency market exchange is a 24-hour market, operating nearly six days a week because of world time zones. Trading begins each morning in Wellington, and moves around the globe as the business day begins in successive financial centers, first Tokyo, then London, then New York.

This gives retail traders the unprecedented ability to respond to currency fluctuations caused by economic, social, or political events as they occur.

In a Forex transaction, a party purchases an amount of one currency by paying with an amount of a second currency. Transactions, or trades are always made between a pair – two currencies.

While in theory trades could take place between any two world currencies, in actuality, most foreign exchange trading involves the currencies of the most financially powerful countries.  Switzerland, while small geographically and not a large political entity, plays a large part in the FX currency markets due to the powerful Swiss banks. Most of the forex currency trading takes place involving the seven major currencies.

 

International currency pairs: The Majors and The Commodity pairs

picture of the major currency market exchange flags by country

The most liquid and the most heavily traded currency pairs are the Majors and their pricing is less volatile than that of smaller foreign currencies.

The Majors that make up about 90% of Forex trades are:

EUR / USD (Euro / US dollar)

USD / JPY (US Dollar / Japanese Yen)

GBP / USD (British Pound / US dollar)

USD / CHF (US Dollar / Swiss Franc)

The Commodity pairs are currencies that are the most commonly traded involving commodities:

AUD / USD (Australian Dollar / US Dollar) associated with gold commodities.

USD / CAD (US Dollar / Canadian Dollar) associated with oil commodities.

NZD / USD (New Zealand Dollar / US Dollar) associated with gold commodities.

Transactions, or trades involving the Majors and the Commodity pairs combined make up about 95% of Forex activity. Of the Majors, the US dollar is the most significant single currency, with involvement in 85% of trades.

The British Pound is next, followed by the Japanese Yen, the European Euro, and the Swiss Franc. The Currency Market Exchange is a much more concentrated place than Equity markets with their widely diversified assortment of investments.

In the United States individual retail traders must buy and sell on the Forex Currency Market through a broker registered with the CFTC – the Commodity Futures Trading Commission.

The broker of choice should also be a member of the voluntary National Futures Association (NFA). Forex brokers work with retail trader clients using an online platform that provides both a learning and research tool and a trading mechanism.

The speculative trades that make up most of the Forex market’s volume are all made with the expectation that the currency bought, or sold will increase/decrease in value in comparison to the other currency that it is paired with.

Although, it has become easier now to be involved with currency market exchange, the trading itself comes with various risks. The many variables that come into play when judging currency values creates a much different arena than the Equity markets. This makes it vitally important to work with a reputable and knowledgeable Forex broker.

picture of a maze that reflects the complexities of currency market exchange

For the complete beginner, however, this Market can be a maze of pitfalls designed to help you lose your shirt. The stories are easily found all over the Internet relating how newbies lost everything. One man lost a huge chunk of money due to inappropriate management of the leverage offered on forex currency trading. Another relied heavily on the forex signal service, which have claimed it is 100% accurate, but lost everything in one transaction. A search on any search engine will pull up dozens of these tales of woe. The message is clear, don’t try to speculate in currencies, unless you are an experienced trader!

Please also read: Busting The Myth Of A FOREX Market Maker

Then again, if other Forex traders can do it, with enough research and skill, perhaps you can too.  There is no doubt that some people make a living trading on this Market. Approximately 10-20 % of traders are making money. That leaves 8 out of 10 in the cold, but if you feel you have what it takes, make sure you do the research, get a platform that offers excellent customer service, and avoid “trading greed,” which will invariably lead you to bad investment choices.

As you may have understood, the forex currency trading interests many people, but they may find it unfamiliar due to its difference from other markets, commissions, technical jargon and its speculative nature among other things. However, with the right guidance, anyone can successfully trade in currency market exchange and avoid making costly mistakes that have led many to shy away from trading the currencies.

magnifying glass on the currency market exchange canvas

When seeking to trade forex the right way, it is important to know much about the trade and know the answers to the questions that most people ask about the market. The questions that people often ask include the following…

Which Currencies do People Trade in Forex?

The main currencies traded in forex are the world’s most liquid currency pairs. The four major currencies are the Euro/US dollar; US dollar/ Japanese Yen; British pound/ US dollar and the US dollar/ Swiss franc (CHF). The three commodity pairs are Australian dollar/US dollar; US dollar/Canadian dollar and the New Zealand dollar/ US dollar. These currency pairs in addition to other various combinations such as GBP/JPY, EUR/GPB and EUR/JPY account for more than ninety-five percent of the speculative trading that happens in Forex.

Who are the Participants in Currency Market Exchange?

Commercial, Investment and Central Banks have dominated the forex market, but other participants are joining the market rapidly. They now include brokers, international money managers, registered dealers, multinational corporations, private investors, options and future traders.

In What Way is Forex Currency Trading Different from Other Markets?

Forex differs from other markets such as stocks, options and futures in that no central government controls it, the lack of clearing houses to guarantee the trades and the lack of an arbitration panel to adjudicate disputes. All the Interbank members in forex market trade with each other based on their credit agreements.

This arrangement works well because forex trade participants must cooperate with and compete against each other. This brings about self-regulation, which provides the market with an effective control. In addition to this, the reputable retail forex brokerage houses in the U.S. have to join the National Futures Association (NFA). When they join NFA, they agree to abide by certain arbitration in case of any dispute. It is, therefore, essential for retail customers who wish to trade currencies to use the services of NFA member firms.

Forex trading also differs from other markets because there is no limit to the amount of money that one can trade. Forex often lacks gaps in price and trades for nearly 24 hours each day.

Where is the Currency Market Exchange Commission?

The forex market lacks commissions because unlike markets based on exchange, Forex is a market based on principals only. Retail firms that are trading in currency market exchange are dealers but not brokers, and they take market risk by being counterparts to the investor’s trade. The most firms do not charge commissions, but make profits by utilizing the bid-ask spread instead.

What are the Issues that Affect Currency Prices?

A variety of political and economic conditions affect currency prices and the most important are political stability, interest rates and inflation. In addition, governments at times trade in the forex market so that they can influence their currency‘s value. They can either use their domestic currencies to flood the market to cut the price, or purchase currencies in large numbers to increase the price. This is what forex traders refer to as central bank intervention.

What are some of the tools needed to start forex currency trading?

Trading platform and charts:

picture of a forex currency trading chart

This one is a no-brainer! Obviously, you need a trading platform and charts, to speculate in the markets. However, you need the correct charts, and not just any charts. Meaning, you need to find a Broker that has the New-York closing charts. The daily closing time of the candle, or the bar, should reflect the New-York closing time.

The reason, the end of the trading Day of the FX market falls at five pm NY time. Actually, it is couple seconds before the five pm, and the start of the new trading Day is marked at exactly the five pm, or 17:00 (military time).

The New-York close also signals the end of one the most actively traded session – the U.S. session. This is an important piece of information, because if you aren’t analyzing the right technical charts, you don’t understanding of what is developing in the market.

The FX Calendar:

image of the forex currency trading economic calendar

This is another very valuable tool. As a trader, you want to be aware of the fundamental developments in the Forex marketplace.

The calendar shows the upcoming economic events along with all the economic news that are scheduled for each of the currencies. It also shows their previous as well as expected values.

This is how the calendar works; as soon as the news event hits the market, the calendar starts to update (in some cases, with a delay) to reflect the correct numbers. Big market moves happen during major economic releases, especially if the projected numbers beat the expectation by a huge margin.

Correlation Matrix Tool:

correlation chart showing the forex currency trading relation

Before explaining this topic, lets answer the question: “What is the correlation in FX market, in the first place?” In the nutshell, it is the relation of price changes in one currency in comparison to another one.

The correlation matrix tool helps to see these related changes in currency pairs that move in tandem.

With this tool one can avoid opening trades on pairs that move in the same direction.

This helps tremendously, to reduce double losses and trading margin locking with the trading instruments that are expected to behave the same way. Basically, the tool helps to avoid speculating the currencies with the same level of correlation.

Capital:

image of a wallet and money with forex currency trading attributes

Ahh, this one… I’ve almost forgot…

Yes, in order to trade you need – Money!

Your trading success will be measured in dollars, so you need lots of them. If you think, you’ll be able to achieve any level of success with just the lousy thousand bucks, you are completely delusional! No pun intended. You need a solid bankroll, especially for the folks in the United States and Japan, for the decreased leverage reason. Without the capital no real-world trading is possible.

Sure, one can trade with the virtual money, but without the real emotional commitment. I’ve seen traders doing really well with the demo accounts, and once they’ve moved to the real deal, they’d blow it all away. The reason, no real-world experience! Bottom line, you need capital and you need to look after it like a hawk with proper risk management.

Hardware & Accessories

If you are serious about trading, then you’ll need a powerful hardware; a desktop, or at least a laptop. The good thing about the desktop is that it has bigger screen which gives you a better view of the charts. On top of that, desktops usually are tougher (longer life span) than laptops and have more capacity for speed.

Desktop: CYBERPOWERPC Gamer Xtreme

image of a forex currency trading desktop computer

# Has huge storage capacity – 1TB hard drive

# Powerful processor with Turbo Boost

# Speed is a major factor when it comes down to parsing data from numerous sources, so this one comes with 8GB RAM with Intel B360M Express    chip-set and with 120GB SSD.

 

Laptop: Acer Predator Helios 300

image of a laptop computer for forex currency trading

# 7th Generation Intel Core i7 Processor

# Turbo Boost Technology

# NVIDIA GeForce GTX 1060 with 6 GB of GDDR5 VRAM

This one is a high-quality gaming laptop with a long battery life. Premium Feel, very portable which allows you to be more, or less mobile with your trading. If you travel a lot, or if you simply don’t like to be chained to one place this is one a decent choice. I mean, it’s not an ultra-thin notebook, but it is very travel friendly. Insane performance per dollar spent!

 

Computer Glasses by Gunner:

image of a forex currency trading modern glasses

Very underestimated trading accessory! Seriously, your eyes are probably the most important thing other than your trading capital. There are so many ways one could get the trading bankroll, but there are none for the precious eyes! If you lose your sight, you’re done – you can’t trade, yet alone do anything in life.

If you think, this is not a big deal, please go on and try to stare at monitors 6 to 10 hours a day, every day, then see what happens in about 3-5 years…

Get the Gunner gaming glasses and protect yourself, right from the beginning!

The glasses help, immensely, to reduce the eye fatigue, so you can be at the computer long enough to hunt down the trading opportunities.

 

What Resources do I need when starting forex currency trading?

Babypips.com

Babypips is one of the best sites to learn about Forex trading for complete beginners. They have courses that will give you a good understanding of the basics, terminology, and mechanics of Forex trading. Babypips also offers their School of Pipsology, which, in a nutshell, is an online trading course, offering a bit about everything forex related.

The site has been around for a long time and lots of newbies flock there for the education. Again, let me reiterate, it’s geared completely towards beginners. The whole site is fun to read, because it’s been written in non-academic manner. On top of that, when things are free, like with Babypips, you don’t lose out on education.

ForexFactory.com

Forexfactory is an online site, as well as an open forum for traders from around the world.

It is the best online stop for forex speculators. It has gathered a lot of very smart traders and is the best online place to up your game. Whether, it is day, or night, there will be literally thousands of traders online at any given time. The forum has enough trading systems to keep anyone busy for a very, very long time. Here is the thing, if you are one these, forex junkies that like reading about trading strategies and systems, then this is the right place for you! Just by reading through all the systems it will probably take you gazillion days, which is a lot.

Forexfactory has become an essential place for traders who want to take their forex currency trading at another level. In my opinion, Forexfactory has probably the best FX news calendar compared to others, which by the way is completely free.

The truly awesome thing about the economic calendar is that a trader can see the high impact news that are scheduled to be released on a certain date in the future, as well as, the news that had been released in the past. You can back test the strategy to see how it has performed during the news release. The site is also pretty good for checking up on Brokers, if you’re looking for the decent one.

ForexLive.com

When it comes to airing the relevant trading information, this site has been the go-to-hub for professional and retail traders since its inception. The folks at ForexLive are driven by the belief that all traders need pertinent and on-time trading information, which they have been delivering every trading hour.

The company has, perhaps, the fastest team of currency analysts from anywhere. ForexLive doesn’t bring just every headline that is out there, it supplies the headlines that really matter to traders. Most importantly, they explain why it should matter. Their analysts are very knowledgeable and diligent. This is the reason why, speculators from around the globe, turn their attention to them, when trading.

They deliver an outstanding media coverage, which is so vital, when speculating in the currency markets. Forexlive analysts react very quickly to ever-changing news releases and provide their objective information in a timely manner. Rest assured, you will be interacting with a team of experienced traders when using this site!

Check this topic: How Knowing About The Stop Hunting Forex Can Make You A Better Trader

Ok, these were some of the basic questions that need answering when thinking of trading foreign currencies.

Well, with the high level of risk and the many technical and fundamental skills needed to execute profitable trades, the question may be asked, “Why even bother with forex trading, with all the high risk involved?”

image of a girl holding cash that thinks about currency market exchange

The answer is simple, forex can be extremely profitable if you are well-informed and take the time to learn it. In addition, many people are looking for that niche that will help supplement the income and the currency market exchange provides the foundation towards building that niche.

Even if someone has never traded a day in their life, Forex Currency Trading provides enough general information that will help anyone have a fair shot at making money. By following a few simple steps, one can begin learning a new skill that may lead them to financial freedom.

There are numerous success stories that can be learned from. In order to belong to the success group, it has been widely said that one of the most important things to do when beginning, aside from going in with the proper education, is to treat it as if it was your own business.

Do not go into the forex currency trading with the mindset that it is a hobby, or a game!

You must be a complete professional and make valuable use of your time. In recent reports, some of the most successful forex traders, who consistently make 30-40% annual  returns on their investment, now hold, or once held a full-time job while they were trading. They were merely using it as a tool to help supplement their income while at the same time treating it in the most professional way, not treating it as a game. So, it is vital to learn how to trade Forex the right way, and be well-prepared before even considering your first trade.

 

The Forex Trading Mistakes

picture of a sitting male with currency market exchange thoughts

When attempting the forex currency trading, some people make mistakes that cost them a lot of money. It is essential to know the most common mistakes made and how to avoid them.

The first mistake is using too much leverage. This is when a trader has a small account balance, but makes a big trade. If the market moves against the trader’s position by a small amount, the trader will suffer large losses.

The other common mistake is over trading. This involves traders looking for absent trading opportunities. New traders make this mistake because their main aim is just to trade and this leads to a poorly executed trade that brings losses.

Another mistake that new traders often make is picking tops and bottoms. They try to tell where currency pairs will turn around at and start moving in the opposite direction, which is difficult for professional traders too.

Traders also often make the mistake of thinking that forex currency trading will bring them quick profits. Now, it is important to note that for Big players that influence this market, Forex falls into a type of a long-term Investment. The Institutions realize, a trader can have positive and negative months. Good traders should have more months and even quarters that are positive.

Jumping from one strategy to the other is most widely mistake that forex traders make. Therefore, it is important to note that it takes time to develop a certain strategy and personalize it. Once a trader does this, he or she can adapt it to changing market conditions so, sticking to one strategy is the best idea.

The other common mistake that traders make is lacking of a stop-loss. It is important for a trader to have a clear exit strategy when entering into a trade. One should decide how many pips he or she is looking for and limit the loss that one is able to bear. If the loss limit is fifty pips, a trader should set his, or her stop-loss to get out of the trade automatically when one loses that particular amount.

image of a city that describes the lifestyle of a currency market exchange

 

To Conclude:

The currency market exchange is a lucrative marketplace, but not without proper research and education. There are too many variables for not to properly learn the techniques, yet Forex goes out of its way to assure that anyone is capable of becoming a successful trader. A person’s success will greatly depend on the amount of effort exerted.

Profitability can be achieved with proper education and with the right expectation. When going into forex currency trading with your eyes wide open, as opposed to your eyes wide shut, and with the proper set of rules, training, motivation, learning to execute the correct trades at the correct time, forex trading can and will be an extremely profitable venture.

Remember, knowledge is power in all things, and all things can be accomplished through knowledge. With the right guidance and with proper knowledge, traders can highly succeed in forex trading.

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