FX Trading: Barriers to Success

Forex trading can be a complicated business. Many people simply dont have the time to sit in front of a computer all day, looking for well-judged market entries, figuring out what their ideal spreads are, and managing their exits. And not all retail traders are adequately prepared to manage the potential risk that comes with trading the financial markets either.

I strongly believe that new retail traders need access to easy-to-follow educational resources to help them develop the rigor and discipline required to trade efficiently. Without these resources, I feel new traders face three key barriers that could prevent them from reaching their full potential.

The first barrier is structural. Obviously, retail traders cannot trade at the volume and scale of large financial institutions, and most dont have access to technologies that could make their forex trading a more simplified and automated process. Entities such as banks have institutional know-how and sophisticated systems that enable them to stay abreast of market trends and help inform their decisions. By contrast, the average retail trader is less likely to have access to this depth of information or may not yet have found the tools that will help them trade effectively and profitably.

This leads to the second barrier: Many retail traders are self-taught. While this hasnt prevented thousands of people from making profits in the markets, they are also potentially at risk of developing habits that are detrimental to successful long-term trading. As it is, there are relatively few reliable resources for traders looking to learn more about how the process works, or what they should be doing to maximise their effectiveness.

For example, websites such as Investopedia are great for understanding the mechanics of forex trading, but they can sometimes be difficult for the average layperson to understand, which could make it less likely that those insights will actually be put into practice. However, while it may take newcomers some time to sift through several often contradictory sources and decide on the most trustworthy, there is still enough information in the public domain to level the playing field and allow them to trade profitably at a retail level.

At OANDA, we aim to help our clients reach a point where they are self-sustaining and able to develop a trading strategy that works. The best way weve found of achieving this is to give them access to a number of tools such as advanced charting applications, technical analysis, open order books, and economic overlays that can help educate them, not only about best practices in trading, but about the markets in general. For example, our MarketPulse blog allows anyone to access news stories, quality analysis, and commentary on the latest forex trends, free of charge. We believe easy access to information and advanced trading tools can help redress the balance between retail traders and their institutional counterparts.

The third and final barrier to retail trading success comes down to choice of broker. While there are several reputable brokers to choose from, many less scrupulous firms do exist, so its critical that traders do their due diligence when choosing a broker. Factors to consider include whether the broker is regulated, the pricing model they employ, the speed of their execution engine, whether their trading platform will meet your needs, the quality of their customer service desk, and the security measures they have in place to protect your account.

All three of these barriers – the structural advantages financial institutions have, the lack of comprehensive educational resources for aspiring retail traders, and the need to choose the right broker – can be mitigated with solid research.

As brokers, we have a responsibility to provide the resources that will enable retail traders to access the information they need in order to make informed decisions and increase their chances of success. Before entering into a market as volatile and potentially risky as forex, would-be traders have to do their own due diligence. They need to learn not only how the market works, but what they can do to minimize potential risk and develop effective trading plans and strategies.

Mohsin Siddiqui isManaging Director, The Americas, OANDA