Learning on the job
By Trader Plus - Sun Oct 14, 1:15 pm
There’s a whole industry devoted to teaching you about forex trading. And, let’s face it, trading anything is a tough gig. A little education wouldn’t go amiss.
However, like any large purchase, you should do a little homework before jumping in. There are many different options available and, of course, some options are better than others.
The news that Hubb Financial, the owners of trading education group Safety in the Market, had been taken to court by ASIC in December has done little to put the minds of newer traders to rest.
So, what should you be looking for in a forex education?
What’s unique about forex?
While the sharemarket and its movements are discussed and analysed on a daily basis in the Australian media, foreign exchange gets only a couple of seconds’ coverage and very little analysis.
The recent rise in the Australian dollar has caused coverage to increase over the past few months, but you rarely hear of the other big events in the currency market, such as last year’s collapse in the value of the US dollar and the euro.
With much less coverage of the currency market, it’s understandable that ordinary people, let alone share traders, are wary of considering trading foreign exchange.
Additionally, everyone had friends and family members that trade shares, but it’s a rarity to meet foreign exchange traders. That’s just one more reason that foreign exchange can generate such mystique.
But is trading forex that different from trading shares?
Simon Bishop, head of sales at FX broker ForexCT, said that while many of the concepts differ, there are many similarities between all forms of trading.
“The core concepts around trading centre on money management, psychology and ensuring you are rewarded appropriately for taking on risk,” he said.
“Regardless of what market you are trading, these concepts never change.”
Firstly, the drivers of currency valuations are much different to those that effect share prices. FX rates are generally driven by the different interest rates in each country and the future expectations of those interest rates.
Additionally, FX markets behave differently to share markets. While, over the long term, share markets generally go up (as inflation causes asset prices to rise) this doesn’t occur in the same way in FX markets.
One trader, who has more than 20 years’ experience in the sharemarket, told us that he was having difficulty in adjusting to the forex market.
“I absolutely love trading forex, but it has been hard to adjust to the differences in the market. Most importantly, I am used to shares either trending higher or lower. The forex market is less dominated by trends while support and resistance are far more important.”
Where to go?
Nial Fuller, director and head coach LearntoTradetheMarket.com, said that potential students should be prepared to do some homework before they pay their school fees.
“Education is critical. The path most new traders take is to fully fund their account, take large losses, and then start to wonder whether they might benefit from some education,” he said. “After losing money, some new traders are at the point of desperation and may not be making rational decision about education.”
Bishop said one of the most important factors is to figure out what the education provider is hoping to get out of it.
“A lot of educators are only interested in getting you to trade with a particular broker,” he explained.
“Get an idea of what the course plans to teach you up front. You can find yourself paying thousands of dollars for just the basics of trading. There’s no harm in asking for a course outline. If the universities ca
n do it, so can your professional forex educator.”
Fuller agreed: “The most important question you can ask is to find out what style of trading you will learn. In my opinion, if you are just starting out, you should be looking to learn the more simple strategies. There’s plenty of time for complexity if you can first master the basic skills.”
In trading, particularly, you learn that you never stop learning. Markets change, people change, and you need to adapt your trading over time. And, when you are starting out, the learning curve is exponential.
As Fuller said: “Education isn’t a quick fix to trading success. It’s just one part of an ongoing process.”
For this reason, you need to have ongoing support. Fuller said it is crucial that any education you receive has some form of support in the future.
“Learning trading concepts and systems is one thing, but when you start applying them, you will have questions. Make sure there’s someone there to answer them,” he said.
Traders agree that the key essence in learning anything is actually doing it. You can’t expect to play golf well without swinging a club at some stage. So, at some point, you will need to fund an account and get trading.
Bishop agreed that you need to start trading to learn how to trade.
“You’ve got to have a certain amount of information to understand the product, but what you should be doing is starting out small and trading and learning from your mistakes,” he added.
“Once you actually have money on the line, you understand the real difficulty of trading.”
New traders might consider putting a small amount into your account with the understanding that they might lose it as you learn about the market. If you were planning to put $10,000 into the forex market, you might consider the first $2000 as tuition fees.
“There’s always an element of that old saying: ‘Those that can, do. Those that can’t, teach,’” concluded Bishop.
“Make sure the people that are teaching the course have a valid reason for not trading themselves or are, in fact, trading themselves.”