The success rate when trading financial markets is not as high as many would wish. After all, this is the place where big players meet, and the retail trader is part of the smallest category of market participants.
This is particularly true in the case of Forex trading, where institutional investors, sovereign funds, central banks, commercial banks, etc., participate in the same market as retail traders. Because of that, it is often said that retail traders should follow the big players – also called smart money.
Unveiling the power players through exploring Forex trading brokers – is this even possible? Certainly, the following helps: interpret volume data, check if the Forex broker offers other financial markets to trade, and learn to interpret markets like commodities and bonds.
Interpret Volume Data
Volume refers to the total size of buying or selling in security. In the stock market, it is relatively easy to see the daily traded volume of one stock, but it is more difficult in the FX market because of the huge market size.
Nevertheless, the volume data offered by a Forex broker is considered a good enough sample for interpreting volume.
Volume is important because of the VSA or Volume Spread Analysis. This is a market technique helping retail traders spot when smart money or big players enter and exit the market. Or, at least, it offers an idea of what big players might do.
Check If the Forex Broker Offers Other Financial Markets to Trade
The stiff competition between Forex brokers led to many of them expanding their services into other areas of financial markets. Big brokers offer the possibility also to buy stocks, trade options, commodities, and often using margin.
The more markets the broker offers, the more likely big players are to use its services. Hedging strategies require access to derivative markets that allow a manager to use proper risk management techniques to reduce the risk.
Learn to Interpret Other Markets – Commodities, Bonds
Big players look at other markets before taking a position. Think of such players as having more resources than any retail trader and a different time horizon for a trade to reach the desired profit area.
Commodities are alternative investments that are used as a hedge against inflation. Gold and other precious metals are viewed as a mandatory part of a professional portfolio; thus, price changes are often an indication that big players move positions.
Bonds are even more important for understanding financial markets’ flows. Bond prices are inversely correlated with bond yields, meaning that when investors sell bonds, yields are rising.
Investors sell bonds when the stock market is a better alternative and sell them when they don’t want to risk investing in the stock market. Interest rate decisions from central banks affect the yield level, and thus the bond prices are interesting to watch in such a context.