On any given day, the forex capital markets transact more money than most nations can in a year, but most retail traders deal with them in a very limited perspective, price is up, price is down, place an order, hope it works out. This method is only inconsistent, and the inconsistency is not accidental. It is an ignorance gap in a masquerade. FXCM Markets is a member of a far bigger and more organized global machine, and traders who have the trouble to learn how the machine actually works are more likely to have keener instincts and more realistic expectations, and far fewer occasions in which they were caught utterly flustered by the way markets were acting in manners not indicated by their charts. Forex capital market architecture is not some abstract theory, but it is the user manual of the environment in which you are trading in every single day.

Central banks are the tallest in the market pyramid and their dominance over currency values is as close to absolute as is possible in the financial markets. By increasing interest rates, a central bank will make its currency as desirable a destination as any global capital – investors will be willing to keep their money in a place that offers the best yields and the demand of the currency will raise its value. When there is a drop in rate or a bank gives an indication or hope that the pressure is waning the reverse effect occurs. That is how traders get obsessed with meeting minutes by the central bank, words of the press conference, and even the very words employed by governors in the speech on the stage. A policy statement that contains words such as patient and vigilant can change a currency pair by many pips in a few seconds, as markets are not only pricing the current situation but also future future expectations. Taking this dynamic into consideration, economic calendars are no longer a list of bland data items, but a genuinely useful trading intelligence tool.

Most retail traders hear about the liquidity distribution over the trading day but they hardly put it into practice. The London session deals with the institutional heaviest institutional volume of any trading window, which leads to tightening of the spread, easier price movement and more consistent technical structures as compared to periods of low volume. This is magnified further by the New York overlap that squashes spreads on key pairs and creates the type of directional momentum that trend-following strategies rely on. Asian sessions are thinner in nature, not useless, but of different character, and typically result in range-bound behavior which is penal to breakout strategies and rewarding to mean-reversion strategies instead. Selecting the session to trade is not an inconsequential choice of schedule. It has a substantial impact on the quality of the price behavior that you are operating with and disregarding such a relationship is akin to smacking the tide and telling the tide not to watch.

The short-run voltage of the system is Macroeconomic data. Employment data, inflation data, GDP data, trade balance data, every one of it has the possibility to reprice a currency pair immediately when the actual figure deviates with the consensus expectations. It is a crucial aspect that new traders fail to understand: it is not the information that moves markets, but the difference between what occurs and what has already been expected. A good jobs report hardly moves an exchange rate when good employment was anticipated everywhere. This is the same report that brings about dramatic movement in case analysts were predicting weakness. Being a trader and trading around on data releases, without knowing this expectation-versus-reality dynamic is where traders are time and again caught on the wrong side of apparently inexplicable moves.

Risk control in forex capital markets is not of the same magnitude as in most other forms of assets since leverage is a structural feature of the way retail traders will trade in the market. Any sizing of a position done without true understanding of leverage exposure may make an otherwise normal unfavorable move into a career-threatening occurrence in a few hours. Position sizing is the decision that is made by the traders who live long enough to become competently able, that position sizing is the most important decision they need to make, not the timing of the entry, not the signal given by the indicator, and not nearly any other decision they will make anywhere in the course of the trading. Preservation of capital is not a defensive attitude. That is what makes you stick around the game so much that you can get good.