The fact that most traders lose their money in the FOREX more than Equities, might be scary for new traders. But we are here to help clarify the reasons and provide a way to avoid the stereotype.
Misunderstanding The Purpose Of Each Market
The main difference between these markets is that the equity market is an investment market. It was built on the sole purpose of increasing its participants’ wealth. Meanwhile, the FOREX market is a utility market running to provide currency exchange services for international operations and businesses.
Misuse Of Trading And Analysis Techniques
The spot FOREX market is far younger than the equity market, since it was started during the early ’80s. However, traders tend to use equities trading techniques to analyze and trade the FOREX market. Not recognizing the different nature of each market is a big mistake that causes bias or diversion in analysis results.
How To Trade In FOREX?
It is important to highlight that equity trading relies on the financial side of the company, trading volume, and the free flow, while currency trading depends on the economic news and business needs more than the volume traded. That is the core difference in how to analyze each market.
Each trader has their trading style so there will be no right or wrong here, it is based on their experience and constant education. The main point on how to improve the quality of the trades is simply by improving the way the trader analyzes the market before trading.
Part of the foreign exchange participants are governments, and some huge transactions are not frequent, which makes it harder to rely on traditional technical analysis techniques for trading. By following the economic news and the time of governments transactions, the trader can get a clearer view of the charts.
What makes the FOREX market so unique is the transparency and the availability of information. There are plenty of resources to gather the needed information such as U.S. BUREAU OF LABOR STATISTICS, Worlds’ bank, or even brokers newsletter. Traders can utilize this information to time trades more efficiently and minimize the risk of unexpected movements in the market.
To summarize, trading using traditional tools is not as efficient in the FOREX market. When combining proper technical analysis techniques with the right information, traders can make trading more solid.