What is Forex?

The Foreign Exchange (FOREX) market is by far the largest market in the world. The $4 trillion average daily turnover dwarfs the daily turnover of the American stock and bond markets combined.

There are many reasons for the popularity of foreign exchange trading, but among the most important are:

  1. The available margin trading
  2. The 24-hour a day 5 days a week liquidity
  3. And low if any commissions.

Of course many commercial organizations are participating purely due to the currency exposures created by their financial institutions accounts on their import and export activities.

Investing in foreign exchange remains predominantly a domain of the big professional players in the market such as hedge funds, banks and brokers.

Nevertheless, any investor with the necessary knowledge is and complete understanding of this market can benefit from this exciting arena.

What is Currency Trading

Currency trading is done, when a trade off is made against the strength and weakness of two or more opposing currencies. For example the currency trading of the Euro against the US dollar or that of the Japanese Yen.

In order for a Forex trader to be successful in currency trading, he needs to look at the market trends and try to analyse where and in what direction he might think that the market is going to go.

There are many factors which can (and do) contribute to the daily currency trades being made, and these can have almost immediate effects to the currency trader. In the world of online forex  trading such factors could be:

  • The outbreak of war
  • Natural (sometimes called Acts of God, in insurance terminology) disasters such as hurricanes, earthquakes, typhoons
  • Secessions and the breaking of trade blocs as recently witnessed with Britain’s exit from the Euro bloc (Brexit)

All these factors impact directly on the supply and demand of currencies and commodities. For example, war could interfere with the supply and delivery of crude oil. Terror acts also play a role in currency trading. Although, traders today, and after 9/11 tend to take such things more in their stride now, and the currency trading markets usually correct themselves pretty quickly today.

In internet forex trading, an exchange rate represents the value of one currency against that of another. An exchange rate fluctuates over time.

The US dollar is the most traded currency in the world and we can look at the value relative to a third currency, which may be obtained by dividing the US dollar rate for that of another.

For example, if there a 120 Japanese yen to the dollar and 1.2 euros to the dollar, then the number of yen per Euro is 120/1.2 = 100.

The magnitude of numbers is not, by themselves, indicative of the strengths or weaknesses of any particular currency. Meaning that the US dollar could be rebased tomorrow, so that one new dollar was worth one hundred old dollars.

All the numbers, in the table, would be multiplied by one hundred – this does not suggest, however, that all the world’s currencies just got weaker. One way or another, currency trading is almost as old as mankind itself.

What is Margin Trading?

Foreign exchange trading is normally undertaken on the basis of margin trading or gearing.

A relatively small deposit is required in order to control much larger positions in the market. This is possible because when you buy one currency you sell another.

Margin requirements are set by your broker and vary from as little as 1% to 10% margin.

This means that in order to trade 1,000,000 USD on 1 % margin, you need to place just 10,000 USD by way of security.

That same security of 10,000 USD, traded on a 10% margin could control up to 100,000 USD worth of one currency against another currency.

3 Strategies To Overcome the Fear of Success When Trading Forex

Is there anything like the fear of success? I know you are thinking that I am kidding or I am being sarcastic. No. I am not.

The fear of success is as real as the fear of failure. Never felt it? Count yourself among the few lucky forex traders in Kenya.

The fear of success is, in fact, more calamitous than the fear of failure because a lot of traders do not know that it exists.

We all say that we want to be successful. We want to make enough money to give our families the kind of lifestyle that they deserve, but subconsciously, we are freaking afraid of all the changes that come with success.

You see, success comes with new and higher expectations. I compare it to a soccer player who scores the most goals and skyrockets to become the top player in that football season. The chances are that the player will set his goals higher during the next season. He will want to score more goals and surpass what he scored the previous season.

And therein lies the problem.

The Pressure of Success

For a lot of people, the pressure that results from a one-time splendid performance may keep them from even trying.

In our case, the soccer player may be afraid that if he tries, he will fall short of how he performed in his excelling football season. He’d rather remain on the sidelines than try and make a fool of himself.

Have you ever felt something closer to this?

This situation is not uncommon. After all, a lot of us grew up being grilled about the importance of excelling in whatever we do.

This pressure to excel makes online forex trading more difficult because no matter how much you try to become better, you cannot avoid making losses. They are part and parcel of trading. You can’t win in all your trades.

Mostly, the fear of success in forex stems from being anxious that you could be on the wrong side of a trade setup.

Many traders identify an incredible entry signal. The pips are just right, and if the trade goes their way, they would walk away with a tidy profit, but the fear of success holds them back.

A few hours later, they are beating themselves up as they would indeed have walked away with a tidy sum of profit.

What can you do to banish the fear of success once and for all? Here are 7 tips:

i.             Focus on the process not the profits

The problem with many forex traders in Kenya (and around the world) is that they focus so much on the profits they stand to gain. If they lose on a trade, their confidence is instantly shattered. The one-time loss keeps them from jumping in on entry signals that they would normally take.

One plausible solution to this is to put the profits and losses out of your mind and focus only on your trading strategy. By doing this, you not only take away the pressure to perform but also get to understand what can be done to improve your forex trading strategy.

ii.           Have an open mind

The behavior of the forex market is constantly changing, which means that you also need to constantly change your trading strategies.

The problem with many forex traders is that they believe that they have to be right; that their strategies are right. They do not want to admit that they were wrong. They are afraid that the market will make them appear foolish.

To overcome this fear, you need to let of your need to always be correct. This will relieve you of the pressure of wanting to be right all the time. It will free your mind to concentrate on and better understand what is happening in the forex market at that particular moment.

iii.         Set realistic trading goals

Goals in forex trading help you bridge the gap between your hopes and reality. If you set unrealistic goals, you set yourself up for a tirade of disappointments. The disappointments affect your mental state and impair your decision making capabilities.

By setting realistic trading goals, you begin to see how far you are from achieving them. You get to a clear mental picture of what it will take to achieve your goals. If they seem far-fetched, you can always cut back on your expectations.