Advice for Beginners in Trading the Interbank Foreign Exchange Markets

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Introduction
This is an article by Mario Kelly & Daryl Swain of Wallwood Consultants, a company that specialises in foreign exchange training and education. Mario & Daryl were foreign exchange dealers and have seen some of the terrible mistakes that novice traders make in the FX markets. For example they have seen clients who have opened an account on Monday, have doubled their money by Wednesday and have lost the lot by Friday! They decided that there was a real need for a fully independent training service in the foreign exchange markets. They specialise in one-to-one consultancy and will visit the trader's office or home, spending time with him/her in setting up a home dealing room or in educating him/her in all aspects of the FX markets. They have seen first hand some of the shady practices that go on in dealing room and can tell you how to avoid them! Their services are aimed at both the institutional and the individual private client.

Article
If one is to embark on trading interbank foreign exchange albeit on a margin basis - one has to assume the role and dress of a bank. What I mean here is to equip ones self with as much price information as possible and to be in touch with the market all the time a postion is established. It is therefore important to resemble a bank, when you phone your bank or broker they are in touch with the markets 24 hours a day every working day-this is one of the reasons they are more profitable than a client. When you deal in the foreign exchange market you have to monitor your position constantly. One of the mistakes I have seen a number of clients make again and again is to bottom pick, and top pick and when they realise they did not quite get the level as the market continued to trend in this case against them, they just end up holding the position "hoping" it comes back their way. Another common mistake is to trade with the full position that ones margin allows and thus the pain barrier is somewhat shortened.

It is possible to minimise the "hope" factor though never to eradicate it in any trade a client does following these points:

  • Be disciplined
  • Look to enter a position on a break or follow a trend as much as possible
  • If you do bottom pick or top pick and the market moves against you then have a stop in place
  • Monitor your position
  • Use fundamental/economic and  technical factors in combination when establishing a postion.
  • Use the overnight rollover premium in your favour. These few pips can soon add up.
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    Common mistakes made by clients

  • Clients tend to  establish a position on hope that the market will move in his perceived direction
  • Clients tend to buy dollars against corresponding currency - be flexible be prepared to go short
  • Clients tend to reveal what they are looking to do when asking for a quote
  • Clients don't have any percieved stop or profit level when establishing a position.
  • Clients tend not to look at the charts which all the interbank players are following
  • Clients tend not to work with more than one broker so as to be able to compare their service and prices
  • For further information please contact Wallwood Consultants on +44-(0)181-539-8999 mentioning this article.
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