The Foreign exchange market is a place full of opportunities. Traders from around the world come to take their chances in the financial world.

For all retail traders, this is a challenge. It’s like moving to New York. If you can make it there, you can make it anywhere.

Same with Forex trading. If you can trade for a living, you can do anything in life.

Before saying this is a piece of cake, look around for a bit. Or, if you’re a Forex trader, check all the trading accounts you’ve blown so far. And, moreover, consider the future ones you’ll lose.

Statistically, retail traders lose their first deposit in the first six months. However, statistics stop here.

Reality has even more disappointing news. Very few retail traders make it in this world. Again, trading currencies is not for everyone. And, especially, not for every retail trader.

Reasons to Avoid Forex Trading

While every Forex broker will tell you to trade as much as possible, you should give it a thought first. If it is that easy, everyone can do it, right?

However, looking for financial independence from the Forex market comes with huge risks. Imagine some of the players you’re facing first:

–    High-frequency trading algorithms that belong to quant companies. They have more money than you, more power, and don’t blink when losing/making millions in a second.

–    Central and commercial banks. They have special trading departments that execute orders in the market. Multi-millions and billions of orders. They don’t care who’s on the other side of the market. They simply execute.

–    Forex brokers. Most of the times these entities trade against you. When they don’t, they don’t have enough capital to provide access to the best liquidity providers. Hence, they’ll charge you extra via spreads and other fees.

Emotional Rollercoaster

Don’t believe everything you read/see in a commercial. Making money is a tough job for everyone.

Trading the Forex market for a living is even tougher. You’ll end up staying in front of the screen all day looking at the market going mostly against you.

Not to mention, when economic news comes out, trading algorithms go crazy and trigger stops all over the dashboard.

The moment you sell a position, the market goes against you, like a bad joke based on Murphy’s laws.

Lack of Funds

To trade for a living, you’ll end up comparing trading with a regular job. This is bad.

You can’t expect a paycheck at the end of each month. It so happens that the market will not move. Or, you’ll have a bad losing streak.

But hey, bills do come at the end of the trading month. So, either you have some spare cash for a year or so, or you’ll end up taking unnecessary risks. In the end, the market will come for you.

Lack of Experience

Most of the retail traders come without the basic knowledge about what Forex trading is. Not to mention, how to make it in the markets.

There are various programs out there. However, there’s no holy grail. Even the most sophisticated traders lose money.

Conclusion

Unless you simply look at trading as a hobby, you should hold on to your job. Don’t follow a crazy advice like quite your job to become a trader.

Think before you act. Look at the numbers and then think again. The hard truth is that you should avoid Forex trading by all possible means.

To benefit from their daily market swings, forex trading deals with buying or selling currency pairs. For the regular retail trader, this activity is associated with scalping.

But investors buy or sell a currency too. Macro-investors look at the economic discrepancies between two economies or even regions in the world. They buy or sell a currency and have a longer time horizon for their target.

In both cases, the outcome is a profit and a loss.

Ask any trader in the world and he/she will tell you that trading is not gambling. What is the difference, then, between trading and gambling?

The earlier explanation gives the answer. Retail traders mostly scalp their way through profits, while investors do trade.

From this point of view, retail traders gamble, while investors trade. It all comes from the time horizon of their trades.

Is it that simple though? Can we draw a line in the sand between trading and gambling? If so, how about the Muslim traders? Is trading Forex halal or haram?

Forex Trading – Halal or Haram

Before discussing this topic, we should explain the two words. In fact, we already did.

In Islam, haram stands for gambling. As such, it is strictly forbidden in the Muslim world. Religiously, haram is perceived indecent, or sinful.

On the other hand, if trading is NOT perceived as gambling, it is halal. This is allowed.

Conditions for Forex Being Halal

If you do not gamble, Forex is halal. For that, at least to following should be considered:

• Avoid swaps. A swap is an interest rate differential between the two currencies that make a currency pair. When this differential is positive and the position is kept to the next day, a small amount gets deposited in your trading account. This is forbidden. To avoid swaps, either trade intraday (close all your trades until the end of the trading day) or use a swap free account. Most Forex brokers offer now swap free accounts for Muslim traders.
• Use an ethical mindset. This is very difficult to express in words. You’ll have to have a different reason to trade, other than simply buy or sell. Moreover, you must analyze the market and not simply ride a trend for profits.
• Treat trading as a job, and not as a game. This is simply because most professional traders do that. If you do not treat trading as a job, and treat it as a hobby, you’re doomed to fail anyways.
• A trade to make a living, not to make a profit. To do that, first you need to learn money management techniques and why it is more important to focus on the potential losses first and then on the expected outcome.
• Know the product you are selling. As for the reason why you take a trade, you leave little room for error when you do that.
• Define a proper plan for trading. Use risk-reward ratios that have clear entries, exits and stop losses. Base your money management system on a set of rules to follow no matter what.

Conclusion

Above there are only a few of the things that make trading halal. One can easily change the tone and the bias, however, and make it haram.

After all, the line between trading and gambling is extremely thin. Moreover, other things related to trading come to discussion.

For example, the broker offers access to leveraged accounts. Which, essentially, means that the trader accepts a loan. Yet another subject to debate on a long list of pros and cons about Forex trading for Muslim traders.

Everyone seems to be interested in becoming a Forex trader. The idea of being your own boss and working when and if you want appeals to traders.

But, this is just a dream. The cruel reality is that over ninety percent of Forex traders lose their first deposit.

Not only that they lose it, but they don’t learn anything from the process. Yes, Forex trading leads to great returns, but only if you do your homework and put the time to learn the business.

Trading for a living is like running your own business. While being your own boss, you’ll end up dedicating more time to it than being a regular employer.

When you have a regular job, when the working day is over, most of the people simply forget about the job and enjoy the rest of the day. Some with their families, others relaxing…like they should do.

It is not the same when you depend on the financial markets. As a trader, you’ll make money only if the market moves. However, most of the times the market doesn’t move.

Cons of Trading Forex

Despite the low odds to succeed, online retail trading grew in popularity in the last years. Advertising is a reason for it.

What can be so difficult? After all, there’s a two-way street: price can only go up or down.

The following are reasons why you should NOT get into Forex trading. Read them calmly, and then consider if you still want to trade Forex for a living.

Emotional Roller-Coaster

As a retail trader, you’ll be inclined to take small profits. Hence, you’re most likely to be a scalper. By definition, this means you’ll trade smaller time frames (like the five-minute and hourly charts) and news, with the idea of making a quick buck.

But Murphy’s laws apply to Forex trading too. The moment you go long, the market goes South. You reverse and sell, only to see the price surging.

The idea is that there’s no perfect place to enter a trade. The entry should be based on a sound technical or fundamental analysis. Which, sometimes it works, sometimes it doesn’t.

To make sure you survive in the long run and the account is not depleted, you need a money management system. There’s no holy grail in trading. Even the trades that end up with a profit will alter your ego and will make you doubt your decision.

Can you handle the pressure? Most people don’t.

Brokers Want Your Money

Not all brokers, but most of them have a trading department of their own. Market makers are the ones that mirror a market.

In other words, they mirror the actual quotes from the interbank market and offer them to their clients. Therefore, when a trader buys or sells a currency, the orders are not passed to a liquidity provider in the interbank market.

In fact, they remain “in house”. The broker takes the opposite side of the trade. To win, it will use all the tricks possible (increased spreads, high slippage, etc.)

High-Frequency Trading

Nowadays, traders follow robots. Super-computers buy and sell currencies every millisecond to profit from their volatility.

As such, retail traders can only adapt to these moves. Some robots have a simple task: to take the previous swing and then reverse. They execute thousands of trades per second, belong to highly-sophisticated financial entities, and don’t care if you lose money.

Still want to trade Forex for a living?

Conclusion

If the answer is still yes, here’s another reason to think twice. You’re your worst enemy in trading. Knowing yourself is the only way to succeed.

Knowledge can be learned. Technical and fundamental analysis can be taught. But, no one will tell you how to handle the pressure. The market heat.

You must handle your worse fears in the market. Moreover, greed will make you exit too early from a good trade.

Robots don’t care about these two aspects. But hey, they run the Forex market, remember?

The Forex dashboard consists of over twenty-something currency pairs. They represent combinations of currencies from around the world.

Each currency shows the strength/weakness of an economy. The stronger the economic performance, the stronger the currency is.

When the economic activity picks up, companies will expand their activity. They’ll start hiring more people and pay higher wages to compete on the jobs market.

As a result, people will see their month-to-month disposable income rising. In plain English, they’ll have more money left at the end of the month.

Spending rises. This, in turn, will put pressure on prices. Sellers will notice the stronger demand for their products and will ask more money for them.

This is how inflation appears. The definition here is simplistic but contains all the elements of an inflationary cycle.

For the Forex traders, inflation is the most important element that gives the direction of a currency. Here are three reasons why this is the case.

Central Banks’ Mandate

Central banks around the world have a mandate. Or, if you want, a job they must do.

Any mandate of a central bank that governs a capitalistic economy considers inflation. Some central banks have a dual mandate, like the Federal Reserve in the United States. Not only it looks at inflation, but also at job creation.

The typical inflation mandate calls for a normal level of inflation to be below or close to two percent. As such, 1.8% or 2.2% are normal levels.

Anything above will result in the central bank raising rates. Anything below will trigger rate cuts or easing.

Every trader in the world knows this equation. Or, at least, he/she should be aware of this correlation. Because this correlation gives great positioning for future trades.

CPI – Consumer Price Index Release

In economic terms, inflation is referred to as CPI (Consumer Price Index). It reflects the price changes of selected goods and services in an economy.

For Forex traders, the CPI release is a great opportunity to position for the central bank’s meeting. The thing is that the CPI comes out AHEAD of the central bank’s meetings.

In other words, a release that differs from the forecasted value will be enough for traders to position for the central bank’s next meeting. If the CPI disappoints, sell the currency as the central bank will have a dovish tone.

The opposite is true if the CPI exceeds expectations. Sometimes there are a couple of weeks until the CPI release and the central bank’s meeting. In other words, plenty of time to position on the right side of the market.

The Core CPI – Eyes on the Oil Market

Not all prices matter, though. Central banks prefer to look at real inflation or the “core” one. This release will focus only on the change in prices of goods and services except for energy prices, food, and sometimes transportation.

These are volatile and most of the times transitory. Hence, the data tends to be distorted.

Therefore, traders should focus on the core release, not the regular data. Sometimes, the actual inflation comes in line with expectations but the core release doesn’t. That’s when the market will move

Conclusion

For a currency, all that matters at the end of the day is the interest rate. Central banks set the interest rate, and they do that looking at inflation.

Knowing when inflation comes out and what data to consider is vital for Forex traders. Together with technical analysis, this information put a solid foundation ahead of every future trade.

There’s a decent offering of Forex trading platforms and especially as novice trader it’s hard to get an overview. We’d like to help you with this matter and show you what different platforms are available and which one to choose.

What is a Forex Trading Platform?

First of all we need to clarify what a platform is and why you need one. The platform itself has nothing to do with a forex broker. A forex broker only offers a platform where people can trade. But it’s his choice which platform he uses, if he buys an existing platform or develops his very own one. Licensed platforms are widely spread as the broker doesn’t have to invest millions in delevoping his own platform. The downside of this approach is that the broker is just using a platform his competitors also have and nothing really unique. But developing an own platform is something only very few brokers can afford.

As trader you can login to a trading platform, administrate your account (making deposits and withdrawals) and trade with currencies obviously. You can analyze charts of currency pairs and follow prices in real time.

What makes a platform good?

A good platform makes it as simple as possible and as efficient as possible for you to trade. This sounds like a simple task but it really isn’t. Trader’s demands are releatively high nowadays even for novice traders. As novice traders you really don’t need all features and everything but you have to be confident that trading is as simple as possible and you don’t have trouble executing trades, analyzing charts, etc. Especially in the early stages you want to avoid costly mistakes and these will happen when you’re not confident using a certain platform.

Metatrader

Without a doubt there’s one trading platform that stands out from the rest and this platform is called Metatrader. This platform is available in the fifth generation already and can be used by every broker. The broker is buying a license and can offer the Metatrader platform to its traders. He sets up things like currency pairs, spreads, etc. and can differ from other brokers this way. When it comes to trading execution there might be differences, if a broker executes certain positions fast, slow or januarybe even rejects them.

Here’s a screenshot of Metatrader. Click to enlarge:

eToro, Plus500 and Co

It can be a huge competitive advantage when you’re able to offer a platform that no other broker can offer. There’s no doubt that Metatrader is a very good platform but when it comes to novice traders that trade Forex for the very first time Metatrader shows significant flaws. Navigation and trading execution is not self explaining and there are platforms where it’s easier to start out. Examples are Plus500 and eToro. There you can execute a trade with one single mouse click, stop loss and take profits can be set automatically when you’ve set your risk level. With Metatrader this all goes manually. Here’s a screenshot of the eToro trading platform (click to enlarge):