Forex Trading from a Bank’s Perspective – by Olumide Adesina

Editor’s note: In this article, Olumide Adesina debunks some of the widely held misconceptions regarding institutional forex traders.

JP Morgan, UBS and Deutsche Bank, the three largest players in the foreign exchange market, account for around a third of all foreign exchange transactions worldwide.

Only 5% of all Forex traders are bank traders; the remaining 95% are speculators. However, 5% of bank traders account for 92% of the total Forex trading volume.

Let’s start by debunking the first misconception about institutional forex traders.

The facts

They don’t spend their days sitting around deciding on proprietary trades. Most of the time, they simply represent the bank’s customers.

You don’t really “negotiate” with “banks” directly as part of your retail customer contract. You are competing with a market maker who poses as an “ECN/STP broker”. Model banks and funds do not trade Mini and Micro lots. What a bank considers a “Standard” lot.

They assume the role of counterparty in your transactions using this credit. Let’s say you start trading regularly with an experienced trader rather than the usual “B-Book” player who will quickly blow up their account.

Your “broker” (market maker) is forced to “book” your trades and lose your money elsewhere (passing on the risk) in this scenario.

Many retail traders never leave “B-Book” territory and their orders are never executed in today’s interbank market. The back-end “Brokers” server, where “B-Book” transactions generally end up, never receives your order.

Banks don’t spend billions of dollars on a single five-minute transaction. Given their size, they must consolidate their positions over time.

When the masses sell, institutions buy to take a position. After acquiring a position, institutions typically sell, but the public buys.

The price will eventually reverse and start moving sharply in the opposite direction to most retail “dumb” currencies – as they call you when they fool around to gain profits – due to the “pattern” of construction of the institutional position. This will give you the impression that the market is dynamic.

Banks outperform individual investors in analyzing fundamentals and macroeconomic events thanks to their extensive client/client network and software tools such as Bloomberg Terminal.

Banks benefit from companies and investors positioning themselves for such events and access “private” information that individual investors do not have.

This means that retail Forex traders tend to “significantly” refrain from providing prices before key data such as traders entering into trades and entering the market as non-farm payrolls are published, pushing bid-ask spreads towards banks are around three times larger.

Risk-reward ratios, time frames to use, currency pairs to trade, price action methods, and trading strategies are all included. One skill a typical bank trader needs is the ability to quickly evaluate data.

Although trading requires a lot of mathematics, it is represented visually through charts that use technical analysis patterns and indicators.

Traders therefore need to hone their analytical skills to recognize trends in charts. In the forex market, a trading edge is a strategy that gives you a competitive advantage over other traders. Some retail forex brokers offer such options

Banks have a strict risk management system and do not ignore the possibility of losses so often. When the market is moving in the opposite direction, a trader can use this strategy to mitigate the negative effects of a losing trade.

This makes your trading process special or something you are good at. Review your Forex brokers’ strategies to determine if you have a competitive advantage.

Check out popular methods for managing risk, discovering opportunities, and mapping entry and exit strategies.

The Forex market does not have a clear formula for success, like any other financial market. The ability and willingness to navigate this extremely volatile market is crucial.

Source: Legit.ng