1. WHO Trade Forex
   

Far more important than knowing who trades forex is knowing who trades forex successfully, and how they do it. The players in the forex markets operate with widely varying perspectives. When one of these players enters the market, a force is created that is proportional to the perspective of the trade initiator. That force can play a role in the short term, creating radical price changes, and it can play a long term role, defining trends.

Below shows the major perspectives in the forex markets.  Each perspective carries a different attitude, goal, investment horizon, and market impact.

1. Governments - Long terms enablers of national,regional or global economics goals. Market disruptors.

2. Investment Funds - Long terms trend followers with high levels of skill resources        knowledge and commitment. Risk avoiders.

3. Banks - Credit suppliers to corporations, governments,funds and ancillary forex traders. Market makers.

4. Corporations - Long term players who seek profit protection through treasury management. Active Hedgers.

5. Traders - Short term followers with a wide range of skill,knowledge and resources, and commitment. Risk Takers.

They key difference among these market participants is their level of sophistication, where the elements of sophistication include:

• Money management techniques

• Profit objectives

• Level of computerization

• Quantitative abilities

• Research abilities

• Level of discipline

Of course there are sophisticated and non-sophisticated banks, governments, corporations, investment funds, and traders. But among these segments it is the individual trader who has the least amount of external governance. Whereas governments, banks, corporations, and investment funds adhere to regulations and restrictions (to a certain extent), traders are only restricted by their level of capital.
In the absence of these external restrictions, traders fall into two groups: those who can impose internal restrictions – discipline - on their trading strategies and those who cannot: the fence-swingers, et al.
Those who can impose this discipline we will call the sophisticated investor. In the zero-sum game of forex trading, the sophisticated investor uses tools and strategies that emulate those of the highly sophisticated institutional participants to extract profits from the novice participant. It is only the sophisticated investor who has the ability to extract positive returns from the forex markets.

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THE SIX FORCES OF FOREX

Trading forex is like watching a school of fish move. One minute is total harmony, the next, complete chaos. As the observer of this school of fish, do you believe you can accurately predict the direction the school of fish will move each time? Would you bet on it?

What causes the fish to move the way they do? Why do they work together in one moment, moving with force and precision, and move in what seems to be an infinite number of directions the next? There’s no way to know unless you can sense what the fish sense each time they move. The fish have an instinct about the nature of their environment. They understand the context of all things around them – natively – and can react accordingly. Surely if you shared this understanding you’d be a much more accurate predictor of fish movement!

Trading forex is not much different - we need to develop that keen sense of what is happening around us. Will we ever be able to predict every move in the forex markets? Absolutely not. But we can use our understanding of the context of the market – the six forces of forex – to make better, more profitable trading choices. Once we understand these forces, we can create and operate within a comprehensive trading plan:

Who trades forex? Understand who participates in the markets, why they are successful, and how you can emulate them.

Why trade forex? There are superior returns in forex, but not for all investors. Are you one of them?

Where should you trade? Choose to work with service providers who can efficiently enable your style of trading.

What should you trade? Select the currency pair, entry, exit and money management methods that will maximize your returns.

When should you trade? Trade when the environment is most likely to produce the best conditions for executing your system.

How should you trade? Trade using methods that maximize your ability to emulate the proven winners.

Knowledge of these forces and how they work is a major determinant of your success as a trader.

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