How To Trade Forex Like Banker

How to Trade Forex Like a Banker?
Foreign exchange market, for the most part, trades on speculations. News feeds, insider gossips, and updates all give directions to the forex market. But there is a common misconception among individual traders that large investors like institutional banks or international corporations have access to secret information relevant to the forex market. It’s not true. Banks do have their own sweet advantages when it comes to forex trading but they definitely do not have any insider secrets to success.

Contrary to the prevailing myth, banks trade forex in a fashion similar to the normal traders. They just perceive the market in a different manner. They have a different set of resources which is responsible for their slightly different trading approach. Let’s take a look at how the ‘big boys’ trade foreign exchange.

High Priority News

The prime advantage banks have over regular traders is access to high priority news announcements. Investment and commercial banks possess vast and exclusive knowledge of the financial markets. This does not include any confidential or insider news. Rather, it is important financial and economical data. At this point, you’ll say that almost any trader can tune into a news channel (such as CNBC) or check DailyFX.com for news updates. The difference being that all these sources often report news when it is too late to trade profitably. By the time the news reaches ordinary folks, new trends have evolved and market takes on a whole new direction.

On the other hand, banks use direct sources to provide them with instant news. For e.g. Bloomberg terminal, a live data feed, offers instantaneous economical information to the banks before it is released in the public. As such, bankers have an upper hand allowing them to accurately predict upcoming Forex before the market actually moves. However, these instant information sources come at a price. The charges for above mentioned Bloomberg terminal stand at a staggering $1,500 a month with additional fee to avail real-time price feeds from the exchanges. Moreover, the news supplied by these ‘Reuters’ is simply raw data; which is hardly of any importance to the individual trader. Banks have dedicated teams whose members interpret this raw data and extract some beneficial information. For an amateur individual trader who trades from his home, making any sense out of this data is close to impossible. Though, an individual trader can also work in a team to interpret this data and predict trends the way professionals do.

Huge Liquidity

High equity is another major advantage banks possess over general investors. Banks usually have large amounts of money (e.g. hedge funds) to trade in the financial market. This allows banks to undertake high stakes and trade 200 or 300 lots in a single trade. Naturally, if you invest billions of dollars, even a small positive movement will yield huge profits. Large money coupled with dedicated trading teams consisting of highly skilled professionals point to consistent fat profits. On the other hand, an individual investor cannot invest more than a few hundred dollars (or thousands may be). Consequently, the profits and losses made are smaller compared to the bank’s PnL’s. However, cautious trading and money management helps build large equity over time.

Expert Trading Teams

International banks hire some of the best trading brains out there. These are experienced professionals with years of knowledge backing their skills. Banks pay them larger than life salary packages and provide them with the best technical equipment available. Members are divided according to their skills i.e. scalper, long term trader etc. They share their knowledge, guide each other, and work in a pack to maximize bank’s profits. Though, individual traders can also join forces to form trading teams but their repute won’t match the expertise of a professional group.