Apr 28 2020 1
When you trade forex, you may realize that there are different levels of regulation in the interbank market, and forex instruments have not been standardized. In fact, forex trading is nearly entirely unregulated in certain parts of the world. In consequence, trading currencies is not easy and sometimes at risk. That’s why you need a safe trading plan.
The risks of forex trading
The interbank market consists of many banks across the globe trading together. Banking institutions themselves must identify and accept sovereign and credit threats and have internal processes established to ensure that they are as secure as possible. Such regulations are industry regulations in place to protect every bank involved.
Since each participating bank offers and provides for different currencies, the pricing is built up by the demand and supply of the market. Due to the high trade flows in the process, rogue traders have trouble influencing the currency's value. This system allows investors to achieve market transparency through interbank transactions.
Most of the small and retail traders deal with quite small and half-unregulated forex brokers who can re-quote or even trade as their customers. Depending on the location of the brokers, industry and government and regulations may have some effects, but the safeguards around the world are not consistent.
Therefore, these small and retail traders need to spend time and effort in a safe trading plan to figure out who are the brokers, dealers regulated by the US and UK rather than lax regulations and oversight countries. Finding out what type of account security you can use if there is a market crisis or when your brokers are insolvent will not be a bad idea.
Advantages and disadvantages
The foreign exchange market has the largest volume of trading in the world, thus providing maximum liquidity. It’s really easy to open and close any major currency position in a second with a tiny spread under most market conditions in this market.
Forex markets begin in Australia and end in America from Monday to Friday and 24 hours of each day through most certain center at Sydney (Australia), Tokyo (Japan) Hong Kong, Singapore, London (UK), Paris (France), Frankfurt (German) and New York (USA).
With a small amount of deposit, traders can expand their assets and handle large positions due to the help of leverage provided by banks, dealers and brokers. In forex, the 1:100 leverage is quite high but it’s not common. When using leverage, traders must be aware of the risk also because most dealers have become suddenly insolvent through extreme leverage.
To trade with productivity, traders need to have certain knowledge about fundamental economics and indicators, which can be obtained by a safe trading plan. They also need to have the ability to analyse the whole picture of the main countries economies that can affect the values of global currencies.
Safe trading plan for the most common strategies
For scalping: you earn little spread within minutes thanks to the volatility in the market. The safe way to do this to choose a reliable forex broker who has strong servers. If your broker is slow, you will not be able to keep up with the price.
For day trading: you open and close many positions within a day. Some brokers will charge commissions after closing a position so pay attention to this fee before you start trading.
For long-term traders: you hold your positions for very long, so the swap will be hell. Choose a reliable forex broker with low swap rate so that you can actually make some money. Moreover, never forget to set Stop Loss.
For forex traders with limited funds and in need of more safe trading plans, swings trading and day trading seem to be breathable in comparison to other markets. However, there is a big win for long term traders with large funds if they pay attention to the fundamental analysis on macroeconomics that drive global currencies’ values as well as proficiency in technical analysis.