When traders interact with forex and futures, they are seeking to profit through going long (buy) or short (sell) a specific currency pair, index, or commodity. It takes experience and knowledge to be successful in this market and a thorough understanding of technical and fundamental analysis.
Traders also have to manage position sizes, it is very common that novice forex and futures participants trade too large, sometimes upwards of 50% of their trading capital on a single trade. If you’re over extended and leveraged, it just takes one small move of a few “pips” to wipe out your entire account and send you into a margin call. Some market participants believe that you should risk “no more than 2% of your trading capital on a single trade”.
Risk management is another aspect that you have to understand if you hope to be successful in this type of market. Cutting your losing trades early and letting your winning trades ride is essential for success. As Stanley Druckenmiller (billionaire hedge fund manager) says, “it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong”.
The Bible of Forex and Futures
“The Futures Game: Who Wins, Loses, and Why?” by Teweles & Jones is arguably the greatest book written about the futures market. It’s the ultimate bible for the forex and futures speculator, it’s mandatory that one purchase and read it before choosing to interact with the markets.
Mastering Your Asset/Security
It’s important that traders become a master of their domain, it is common that new market entrants trade dozens of currency pairs and commodities but that is likely a recipe for failure. Traders should master one or two securities, in this way a trader can research thoroughly and effectively.
If you try to trade multiple currency pairs, commodities, or index futures you are likely to fail because the amount of information that you need to analyze will be overwhelming. Yes, you actually need to conduct appropriate fundamental and technical analysis, the best trading programs in the world are not a substitute for hard work. To go further, access to data subscriptions will also help you more than the cost of maintaining them will hurt you.
Trade selection is of great importance to the speculative trader, you don’t need to chase every trade or movement. It’s important that you develop some sort of process, rules, and/or philosophy that help regulate your buying and selling decisions. The most successful forex and futures traders don’t trade all day, they are typically looking for perfect trade setups where their risk is low and profit potential is high. In addition, don’t forget that timing is important in forex and futures because you will pay rollover costs each and every day that you carry a trade.
This market is for professionals who follow a dedicated trading plan while also having access to top-tier data subscriptions, like most institutional investors. You might get lucky outperforming a market participant with a Bloomberg terminal once or twice but over the long-term the odds are against you. To be successful over the long term requires a proven strategy, adept risk management, data subscriptions, and above average market timing.