June 20, 2024

10 obvious things you didn’t know about financial markets

Sometimes we learn something new, then practice it, only to discover there were obvious things we could define earlier to make our lives easier in that specific field. How many of us had a similar moment when we realized certain truths about financial markets and trading after practicing for some time? In this article, we will define ten undeniable things about financial trading that are crucial in achieving success in the long run. So, stay tuned.

Top ten obvious financial market truths you need to know

Here is the list of the ten most important aspects of trading and financial markets

Education is important

This may seem self-explanatory, but education in Forex and financial markets is critical. You need to know the specifics of the markets you are going to operate to really achieve success. There are countless sources of information on the internet beginners can and should follow as it will define their future as a trader. For suitable introductory materials, click to read beginner trading guides and memorize the main concepts.

Forex and financial trading in general is a risky business

This one too is very obvious. Forex is a risky market as it involves making predictions about future price trends and then acting upon these predictions. As no one has a crystal ball to predict the future, Forex is a highly risky business. Without well-thought and planned strategies to limit risk exposure, it is impossible to win in the long term even with a profitable trading strategy.

Forex is not a get-rich-quick scheme

This one is critical to know. There are trading strategies that involve getting small profits quickly during the trading day, but it is not still get-rich-quick. Usually, any of these advertisers are scammers who are capitalizing on human psychological weaknesses of getting rich and recognizable quickly. If you search for a way to make big money quickly, financial markets are not the place to go. Consistency and discipline are the most awarded Forex trading strategies.

Forex is a 24/7 market

Yes. You heard it right. Although there are various sessions in New York, London, etc. Forex markets never stop working and trading is open 24/5. This gives financial traders greater flexibility when compared to other markets like stocks, for example, where trading is closed during nighttime.

Forex trading is decentralized

This one is simultaneously bad and good news. Decentralized means there is no central authority who is controlling Forex markets, which makes the market highly risky and open to fraudulent actors. Some regulatory bodies are overseeing financial trading in various countries. When selecting a financial broker, make sure they are regulated by several reputable and strict authorities so as not to fall victim to a bad player. Unlike cryptos where blockchain is truly decentralized, the Forex market is locally centralized as it is governed by a group of people.

Financial trading involves leverage

All financial markets involve leverage possibilities. Leverage simply means getting extra funds from the broker to trade with more money on the markets. Some brokers even offer 1:1000 leverage, which means your starting balance is multiplied by 1000 times. Leverage is a double-edged sword, as it can amplify both winning and losing. Leveraged trading involves risks that are higher than any other trading. Since traders are trading with leveraged funds, they can lose more than what they have on their balance. Therefore, extra caution and planning are required before jumping in.

Fundamental forces like macroeconomic indicators and global events affect prices

Financial market instruments are impacted heavily when important news is out. For example, when the USA publishes new non-farm payroll numbers the financial market especially USD-paired instruments is becoming very volatile. Important macroeconomic data can change financial market instruments’ prices or even change the long-term trend. Economic indicators such as Gross Domestic Product (GDP), inflation rates, and interest rates can impact Forex prices heavily.

The psychology of the market affects prices

Self-fulfilling prophecies are popular terms in financial trading, as it involves prices changing because of how most of the market participants react to certain news or trends. If more than half of market participants think the price is going to go in a certain direction, then they can change the market direction. Apart from having an impact on the whole financial market, psychology plays a key role during trading. It is heavily advised to every trader to read books about this phenomenon, as it is very critical to long-term success.

Financial markets are very liquid markets

Financial markets like Forex or stock markets are usually very liquid markets. Money is the most liquid asset as it can be exchanged for another currency, service, or product almost instantly. Forex is by far the most liquid, as trillions of dollars are traded daily. Liquidity means the time you need to sell or buy any instruments is very short. There is usually always someone who will buy or sell you an asset. Low liquiditymarkets are riskier since it takes some time to find counterparties. Liquidity is a good thing in Forex and other financial markets, as it enables traders to buy and sell assets instantly without waiting for trade execution.

Historical market data is not a guarantee of future performance

While past market performance can provide some insight into future market trends, it is not a guarantee of future performance. This is why it is always required to test trading methods on live markets on a demo account before starting trading with real money.

Conclusion

There are many important aspects of financial trading and some of them are obvious right from the beginning, but we still forget them sometimes. This is why it is important to sometimes stop and read articles like this. These obvious and everyone-should-know factors sometimes may be overlooked even by professionals, which can lead to losses and emotional hardships. Reading about these obvious factors will help traders repeat what they already know loud out to their conscious minds.

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