Wednesday 19 June 2024

Regional forex trader ‘needs unique perspective’

Manama, June 25, 2012

Trading currencies in the Arab World requires a unique perspective apart from experience, says Tom Cleveland, an expert in forex trading.

Innovations in technology have reshaped nearly every thing that we now do in this modern electronic world, including how we invest and trade in today’s active financial markets.  One medium that has gained enormous popularity is trading in the foreign exchange market due to its inherent flexibility and allure of quick profits.  Forex trading, however, involves high risk.  Preparation and experience are key factors that can help one navigate these treacherous waters, but a disciplined plan of attack, devoid of any emotional interference, is the tried and true path to success.

For those living in the Arab world or espousing Islamic beliefs, there is one additional “twist” that must be accommodated before currency trading can proceed with a clear conscience.  Shariah Law has specific guidelines when it comes to investing and dealing with risk-laden transactions, but experts have generally opined that retail trading in the forex “spot market” is allowed, as long as specific rules are not violated.  The perspective of these rules is to prevent exploitation or the creation of uncertainty when an outcome is not necessarily known.

Secondly, Arab forex traders will not find many of their native currencies traded on the open markets.  Many Arab currencies are “pegged” to IMF drawing rights in US dollars, and therefore do not fluctuate in line with fundamental economic forces in the market.  Your targets of choice will most likely be currency pairs involving the U.S. Dollar, known as the “majors”, or combinations of the other pairings, know as “major crosses”.  For newcomers to forex trading, it is highly recommended that you focus on one primary pair, get acquainted with its unique “personality”, and then develop a strategy to leverage your experience.

Seasoned veterans often say that there are three factors for success when trading currencies – knowledge, experience, and emotional control.  Each factor requires hours of time invested up front, but the latter is most often the one area that is generally misunderstood.  Knowledge can be acquired through reading, attending seminars, and reviewing tutorials.  Experience can be gained through practice trading with free “demo” accounts, “virtual” cash, and real time quotes. 

Emotional control, however, deals more with who you are, your tolerance for risk, and your personal psychological programming.

There are no shortcuts in this preparation process.  Impatience and inexperience are recipes for an early failure.  The best way to “gird your loins” is to find a “mentor”, accept your apprentice status, and follow his guidelines to the letter.  You will learn to develop a “step-by-step” trading plan that will guide your every move in the market, from when to open a position and when to close it, while employing prudent money and risk management techniques along the way.

Fundamental economic information drives pricing behaviour in the forex market, while technical information provides a “hint” as to trader psychology and to what direction future movements might take.  A successful trader must be able to assimilate a great deal of economic information, apply technical analytical skills to aid in developing a trading strategy, and then have the resolve to act in a high stress environment when real money is on the line.  Accepting losses and minimising them is just as important as realising gains. 

A forex trader would try to ride the trend up, and then also ride the trend down over a period.  His dexterity in acting quickly, while limiting his risk exposure, use of “leverage”, and position sizing, would determine his gains or losses over this period.  Forex trading, again, involves high risk, and it is not the newest form of online gambling.  Caution is required to win.

Many investors have tried their hand at currency trading, but statistics suggest that only one out of three survive.  Invest the time up front and follow the advice of an expert to avoid becoming an early casualty.

 Tom Cleveland is a business consultant and investment researcher for with over 30 years of experience in the international payments industry.


Tags: Currency | forex | Arab World |

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