Banks in this century are changed. Because of digital transformation and open banking strategy (opening up consumers’ financial data and allowing third-party payment services to access banking transactions), banks have more liquidity than ever before. This liquidity will enable banks to trade more on financial markets.

Recently I had a podcast interview with Bryan Mason, a former trader in large banks, and our topic was “Be a successful trader with forex bank trading strategy.” Using theory from books and this interview, we will try to answer the question:

How do big banks trade forex?

The standard bank forex trading strategy is based on fundamental analysis, price accumulation, manipulation, and distribution. Most bank traders try to enter the trade after the false breakout and manipulation stage. Usually, bank traders make less than three positions per week and don’t have sophisticated trading systems.

Banks usually use 80% fundamental analysis and 20% technical analysis. In 20% technical analysis, there are not a lot of indicators. Their technical analysis is based on price levels.

Before we analyze bank strategy, you should check the free Financial Markets course created by Robert Shiller, a Yale professor.  Using this free course, you can learn about banks and financial markets.

 

What is the forex bank trading strategy?

The Forex Bank Trading Strategy is designed to identify price levels (manipulation points) based on supply and demand areas. Banks usually enter into trades during consolidation times, and they need liquidity in the market to enter into positions.

 

This article describes something different. Describe the bank traders’ approach. If you hurry and can not read whole articles, see the “Most common forex trading strategy” chapter for details.

Do banks trade forex?

Banks manage forex transactions for clients and trade forex from their trading desks, primarily using fundamental analysis and long trade positions. Banks make profits trading forex in two different ways. When a bank act as a dealer for clients, the bank generates profit from the bid-ask spread. When the bank trades forex as a speculator, the bank creates profit on currency fluctuations (the same as retail traders). 

Institutional traders, when creating intraday or swing trades, try to buy at the lowest low or highest high price. Because of large positions, they need to build positions using several pending orders. In that case, they do not wait for confirmation; they try to buy low or sell high price.

Most often, institutional trades trade long-term positions where fundamental analysis has the most critical impact!

Forex big banks (banks that trade forex frequently)

Rank	Name	Market share
1	United States JP Morgan	9.81%
2	Germany Deutsche Bank	8.41%
3	United States Citi	7.87%
4	United Kingdom XTX Markets	7.22%
5	Switzerland UBS	6.63%
6	United States State Street Corporation	5.50%
7	United States HCTech	5.28%
8	United Kingdom HSBC	4.93%
9	United States Bank of America Merrill Lynch	4.63%
10	United States Goldman Sachs	4.50%

Top 10 investment banks that trade forex

But bank traders have tremendous knowledge about fundamental analysis and use daily, weekly, and monthly charts in their strategies. Moreover, they are primarily long-term traders because fundamental analysis and economic reports can influence the market days and weeks later.

Bank trading strategy and Dow theory

Dow Theory is a framework for analyzing market trends and movements that traders and investors have used for many years. According to this theory, there are three main movements in the market – the main movement, or primary trend, which can last anywhere from a few months to several years; the medium swing, or secondary reaction, which typically retraces around 33-66% of the previous price change; and the short swing or minor movement, which can vary in duration depending on market conditions. Because these movements often coincide, traders and investors must understand how each one influences price action and market trends.

Several tools and strategies can be used under the Dow Theory to analyze market trends and make informed trading decisions. For example, some traders may use technical indicators such as moving averages to identify support and resistance levels or potential price reversals. Others may use fundamental analysis tools such as economic indicators or news events to help forecast future market movements. Ultimately, understanding Dow Theory and how its concepts apply to real-world markets is essential for success in today’s financial markets, whether you are trading stocks, currencies, commodities, or other assets.

Banks’ strategies are usually related to Dow theory and follow Dow’s basic principles. One of bank strategies’ most important rules is that trends are confirmed by volume. In Dow’s theory, it is rule number 6.

How do big banks manipulate the forex market?

Big banks manipulate the forex market because they have massive positions, create liquidity, and have almost 80% of their volume. Banks trade for clients and for themselves too. Banks drive the markets in 3 phases: Accumulation, Distribution, and Manipulation. By Dow’s theory, the accumulation phase starts when the big investors ( institutions) usually enter their positions. The manipulation phase is a false breakout phase. Finally, in the distribution phase, markets follow a big trend. Of course, these phases are theoretical.

 

Bank trading strategy example:

For example, let us replicate one simple bank trading strategy. The OECD Purchasing Power Parity figure represents a way to assess each currency’s fair value versus USD in the month of publishing. Banks can use monthly CPI and exchange rate changes to create a fair PPP value for the month before the current month.

Buy trade:
Go long three currencies that are the most undervalued (lowest PPP fair value figure)

Sell trade:
Short the three most overvalued currencies (highest PPP fair value figure).

Then, every month, banks can rebalance and remove unvalued or overvalued currencies.

What is the smart money concept?

The smart money concept represents institutional forex trading strategies based on a fundamental approach, long-term positions, and three crucial trading phases principle. Forex smart money concept represents a bank trading strategy based on determining accumulation, manipulation, and distribution trading phases.

Let’s start this article with smart money. This term is widely used to describe the most significant market participants. Please note that these participants have an extremely crucial and substantial part of the market. Moreover, these market participants’ positions can be neither closed nor opened in a single order without spiking the overall market. Here’s a list of smart money or largest market participants — Hedge Funds, insurance companies, most significant banks, massive global companies, prop firms, and speculative traders.

The banks indeed hold a vital position in the market on this list. However, kindly note that they primarily act as a market maker. It’s also true that these banks have a speculative position, but the essential purpose of these banks is all about market-making. These banks drive the market mostly in supply and demand as the primary market makers.

Keynote at a glance: Smart money is a term to define the most extensive market participants. The smart money has a strong position and influence in the market. Banks are considered one of the prominent participants in market making. Although they hold a speculative position, their primary responsibility lies in market making.

The forex market, or foreign exchange, is the largest global financial market. As per a Triennial Central Bank Survey conducted in 2016, forex trading far surpasses the stock market. Its daily transactions average $5.1 trillion, compared to $84 billion of equity volume globally. The forex market also features digital sites that run the currency exchange trade and has multiple distinctive qualities that new traders are fascinated by. We will take you into the introductory forex phase to cover how and why traders are progressively more attracted to forex trade.

Whether you call it forex, currency trading, or foreign exchange, a decentralized global marketing system brings the world’s currencies to trade. The exchange rate price paid to exchange one currency for other drives the forex market.

The official global currencies surpass 100 in number. However, the U.S. dollar, euro, British pound, and Japanese yen are the most used in international forex trade and payment marketplaces. Apart from these currencies, other relatively popular ones are the Swiss franc, Australian, New Zealand, Canadian dollar, etc.

Currency trade can be conducted via spot transactions, swaps, forwards, and options contracts with currency as the primary instrument. Currency trading is also on the list among the businesses that operate 24 hours every five days worldwide.

Before we analyze bank trading strategy, we need to know the following:

Who Trades Forex?

Forex is a market that features many players and a variety of players.

• Banks

The interbank market holds the first position regarding the trade’s highest currency volume. This avenue comprises all bank sizes to trade currency and uses electronic networks. However, big banks are the largest significant percentage of currency volume in exchange trade. This is because banks enable forex trade for their clients and handle speculative trades on bank trading desks alongside their usual banking business.

When banks play the role of dealers for customers, representing the bank’s profits, these currency trade speculations conducted by banks are a strategy to take advantage of currency fluctuations for profit.

• Central Banks

Central and government-owned banks play a significant role in the foreign exchange market. Central banks’ policies on operations and interest rates on the open markets greatly influence currency rates. Also, central banks fix the rates or price of their nation’s currency on forex.

When the central bank takes any action in the F.X. market, it is to stabilize or raise the competitiveness of its nation’s economy. Like speculators, Central banks may carry out specific currency interventions to appreciate or depreciate their currency. For instance, any country’s central bank can decide to render its currency weak by creating additional supplies in lengthy deflationary trends for foreign currency to be purchased with it. When this happens, its domestic currency is weakened effectively, leading to more competitive exports in the international market.

It is with these strategies that central banks calm inflation. Such action also forms long-term indicators for those trading in forex.

• Investment Managers &Hedge Funds

Regarding the most significant Forex market player collection, banks, central banks, portfolio managers, hedge funds, and pooled funds come second in position. Investment Managers conduct trade currency transactions for large accounts like pension funds, endowments, and foundations.

Investment managers with a global portfolio buy and conduct currency sales to trade foreign securities. These investment managers can also execute speculative F.X. trades; meanwhile, certain hedge funds that execute speculative currency trades have their investment strategies.

These are inflation-calming strategies that central banks use. This also presents forex traders with long-term indicators.

• Corporations

Firms in the import and export businesses also engage in forex trade to execute payments for their goods and services. For example, let’s take an American solar panel firm that imports German components and then sells the finished products to Japan. At the end of the cell, the firm’s Japanese yen has been converted to U.S. dollars. The American firm must also exchange U.S. dollars for euros to buy more German Components.

Companies engage in forex trade to avoid the risk of foreign currency translation. So, for example, the same American firm might purchase euros from the spot market or engage in a currency swap agreement to receive dollars before buying components from this German company, which reduces exposure to foreign currency risks.

• Individual Investors

Retail investors make a lower volume of foreign currency trades than financial institutions or firms. Retail investors focus on the following fundamentals; inflation rates, monetary policy, and parity in interest rates. Expectations. They also considered chemical factors such as support, technical indicators, resistance, and price patterns.

The way business shapes Forex trading.

Collaboration among Forex traders makes the market highly liquid and plays a significant role globally. Moreover, the fluctuation of exchange rates impacts inflation and each country’s corporate earnings and balance payments account.

When countries with higher-yielding interest rates start dwindling toward those with lower-yielding, it will carry trade unwinding. Then investors sell the higher-profit investments they have. For example, suppose the yen takes trade unwinds. In that case, it can result in big Japanese financial institutions and investors moving their currency back to Japan, provided they have substantial foreign holdings. This is because of the tightening of the spread between domestic and foreign yields. This strategy leads to a considerable reduction in equity prices worldwide.

Forex remains the world’s largest market for a reason. It endows central banks, retail investors, and everyone else to take advantage of currency fluctuations that characterize the global economy. Moreover, trading and hedging currencies involve many strategies like carrying trade, which presents forex players’ impact on the worldwide economy.

There are varying reasons to engage in forex trading. Whether it is speculative trades that banks carry out, hedge funds, financial institutions, or individual investors, their sole motivation is profit. With monetary policies, rare currency interventions, and exchange regime setting, central banks always have robust control of the forex market.

Understanding who trades in forex and why it is essential for investors.

Before becoming a successful trader, it’s essential to determine the forex bank trading strategy’s nitty-gritty. More precisely, it’s a trading setup primarily designed to identify where the most significant market participants will enter/exit their respective positions based on the probable supply and demand areas.

Also, the top ten banks control more than 60% of daily forex market volume. Since these top ten banks are considered smart money, tracking them is vital for determining the overall trade success. Kindly note that tracking smart money is the foundation of any forex bank trading strategy. Thus, as a successful trader, you must check where the smart money moves in and out of the market. It would help to discover where the smart money is getting traded. With all these details, you will make a profitable trading decision.

Yes, there are different rules and strategies present in the trading market. However, we definitely can’t control these rules and strategies! Since we cannot manage these strategies, we will learn smart money’s trading strategy, i.e., megabanks. Please note that these banks follow a specific business model. Understanding this business model is essential as it will help you achieve consistent results quickly! This business model is based on a three-step process. If you want more details about this three-step process, please review the following sections.

Keynote at a glance: Understanding the forex bank trading strategy is crucial. It’s primarily based on their business model. The business model follows a three-step process: accumulation, manipulation, and distribution.

Critical steps for the ultimate trading success

In theory, the forex bank trading strategy is based on a three-step process. We will discuss the details of these three individual steps in the following sections. But, before that, you will now need to understand a key fact. In every transaction in the market, there are two primary participants, i.e., the buyer and seller. When buying something from the market, someone must try to sell it to you. Similarly, when looking forward to something on sale, you must be willing to buy it yourself. Thus, buying and selling are the two counterparts in every transaction in the market.

The same thing applies true for smart money as well. Therefore, we must track and trace the areas where the smart money is most likely buying and selling their shares/trades. Now, let’s give you a good example: please consider that smart money is buying a considerable portion of trades in the EURUSD market. But, at the same time, they should have an equal amount of selling pressure based on the rule that’s discussed above.

What is the forex smart money concept?

Forex smart money concept represents a bank trading strategy based on determining accumulation, manipulation, and distribution trading phases. Usually, a smart money bank trading strategy’s main characteristics are medium and long-term positions after the manipulation phase.

 

Step 1: Accumulation Bank Trading Strategy Phase

In the forex bank trading strategy, accumulation plays a vital role. The exciting part is that it’s even considered one of the essential factors for successful trading. Unfortunately, most people/traders consider this strategy vague and meaningless, and they never focus enough on it. However, you must understand this strategy accurately to be a successful trader.

Your goal should be to track and find out the areas where, when, and how the smart money, i.e., banks, are planning to enter. To be more precise, you need to find their accumulating secret cautiously. You know when smart money will most likely enter the market, and their respective positions will be your key to success. Suppose you can identify and find out the areas/positions that smart money is accumulating. In that case, you can also specify the directions where the market will probably move. When you have an accurate idea of where the market will be moving next, it will benefit a profitable trading strategy.

Step 2: Manipulation Bank Trading Strategy Phase

This is the second step that comes after a successful accumulation. Market manipulation is quite a complex concept. You will still be urged to understand this strategy to trade successfully despite the complexity. For example, when you wait to enter a respective market area, you will soon notice the market moves in the opposite direction. That’s known as market manipulation, which is a false push. After a considerable accumulation period, s wrong short-term push or market manipulation period must be present in every market.

As mentioned, when the “megabanks” are trying to enter or accumulate the market, they will also create selling pressure. More precisely, they will drive and manipulate the market to sell off their stuff after a considerable accumulation. This is a short-term manipulation period where the market trend may move differently. It may appear that the market is behaving against you during this time! But you will need to be smart and cautious at this point. This short-term manipulation gives you an extraordinary hint about a possible accumulation when the market trend increases.

If you recall any significant market move before, you will surely notice a tight range-bound period known as accumulation. After that phase, there will be a short period of false push in the opposite/different market trend direction, known as manipulation.

Step 3: Distribution Bank Trading Strategy Phase

After the megabanks have accumulated a position in the market, there will be a period of false push or market manipulation. Many forex traders may consider this market manipulation period at the wrong time. But, if you can carefully visualize and analyze the market, you can avoid being a pawn of market manipulation. You can instead make a profit out of it. After the phases of accumulation and manipulation, there is a distribution phase of the market. This is when the banks will attempt to push the price of the market area. Finding the market’s distribution phase is also tricky, and it closely depends on its previous two steps, i.e., accumulation and manipulation.

Megabanks play a vital role in the overall market. As a result, it’s paramount to carefully observe and analyze their moves so that you can be successful in trading. To study their movements, you must carefully follow three steps, i.e., accumulation, manipulation, and distribution. Before any significant market moves, these three steps above are bound to happen. Therefore, as an ambitious trader, you must closely watch these three steps. In this way, you should determine the market’s possible time, volume, and position and then make your trading decision accordingly for lucrative profits.

Smart Money Concept Example

Step 1. Accumulation Example.

As we said, accumulation is the first step of the market in the bank trading system. Smart money trading without accumulation may not allow banks to take any position in any currency market. During this first phase, smart money accumulation must be identified when looking for a market setup. There is no alternative option that smart money can enter the market other than through this accumulation period. Before moving to the next phase, we must see an hour of sideways accumulation. This stage is critical for the trade setup since it is not advisable for the smart money to spike the market because this may give away what they had already accumulated. During accumulation, smart money can achieve a better total entry price by keeping costs relatively stable and entering overtime.
In this example, we have bad economic news for EURUSD. See:

Step 2. Manipulation Example.

In May, we see a bullish market push. No economic impact on the price to go bullish.
Forex traders feel insecure during this stage since they feel it is wrong to enter the market. Many traders experience market changes that seem to move in the worst direction, but that may not be the case since this stage is inevitable; it is also crucial in the product market. This point is what we term the manipulation stage. This forex manipulation stage always comes immediately after the initial accumulation stage. This is a stop-run stage before moving to the final stage, i.e., market trend, mainly when operating on a given consistency.

The manipulation stage is crucial to monitoring smart money regardless of being termed a” false push” because of the market conditions coming toward the end of the accumulation stage. These two existing accumulations of wrong push are;

Bullish. This is a false push beyond the actual accumulation period’s low, which means that the short-term period is beginning since the smart money seems to have been buying into the real market.

Step 3. Forex Market Trend Example.

The forex market trend is the final phase in the smart money cycle. In this stage, the market experienced a very aggressive experience in the short run.

This being the last strategy in smart money forex trading, it is the final step that each retailer hopes will be enjoyable and a mark of the business’s peak. However, the truth is that every stage is essential, especially when a visionary trader is experiencing the manipulation stage since this is the crucial stage to distinguish determined retailers/traders from others.


Bank traders SELL after a short-time bullish trend !!!!

What time frame does smart money use?

A smart money strategy is created for more extensive time frames, such as weekly and monthly. This strategy is part of position trading strategies, where traders hold positions for several weeks or months.

What time do banks trade forex?

Banks trade forex most frequently after the daily opening range (half an hour after market opening) and during the high liquidity when market trading sessions overlap. For example, EURUSD’s most frequent trades are after the US market opens when EU banks working hours overlap with US banks working hours.

However, banks trade long-term positions, and daily trading hours do not significantly impact.

Forex trading needs severe analysis and more research on new and productive ways for a unique and profitable trade. Forex learners should invest more time learning different trading strategies to improve the outcome. Unfortunately, most traders have dropped the trading business following discouraging expectations. Still, the truth is that most traders don’t spend time researching the trade’s different strategies.

Also, traders should analyze strategies, whether predictive or reactive. They need to trade for a given period, say almost a year, to see if it is productive, then choose the right strategy that can work.

Predictive Vs. Reactive strategies.

The basic understanding is about relating trading activities with the nature of being reactive. This means that the trading software will start producing buy signals, and the falling trade market indicates the sell signals when the market rises. Following the rise in the market will lead to more buying pressure, while falling in the market induces selling pressure.

Almost every primary strategy used in trading is reactive, so smart money automatically identifies how to convince you to buy. Also, they know how to direct you toward selling. This is why traders often talk about the trading market that seems to be experiencing a tremendous change in buying or selling once they enter.

The quite uncertain thing about this scenario is that smart money is the only source of information, and the actual information is the most potent fact we require. Still, we will be successful if we are lenient with them and trade as they need. The frequent price manipulation perfectly reflects how far they have accumulated and the desired direction to control the price.

Suppose you focus on how large the market moved before deducing the vast majority of the significant moves. In that case, you will realize a tight and actual accumulation followed by manipulation in the other direction of the market trend.

Trade forex, like the banks, means a lot of fundamental analysis.

As more and more people show an increased interest in trading forex, intuitional entities like banks are equally active in forex trade. Indeed, they are likely to be engaged more because of money, power, and quality think-tank. Further, they can research the market themselves and make sound decisions. Yet, it’s not as easy as it reads. So, we’ll discuss here how banks trade forex. Banks execute their trading based on a set of valuable practical data. And, there’s hardly any other consideration while trading forex.

The extent of banks’ forex share

Banks are among the most significant participants in forex trading thanks to their electronic networks. Moreover, the largest ones in the economy take the lion’s share in forex trade. As a result, banks play a critical role in influencing the volume of forex to affect the trends of markets.

Banks focus on a few criteria.

When banks are active in the market, they make up the market. No other entity in the market can perform as competently as banks. First, they make all the decisions based on fundamental and technical analysis of the pattern that happens in the market. Then, they make the decision superfast.

Banks focus on the actual parameters. There is no place for human emotions to influence investment decisions n forex trade. Instead, they focus on price and fundamentals. This enables them to make sound judgments.

Banks’ forex trading behavior is solely influenced by fundamentals that affect economic decisions. Several factors influence the market trend and hence the direction of forex trade. As many factors are involved, it’s hard to accurately say which factor/s was/were responsible for bringing out the market change.

Fundamental tendencies in the market are highly complex, and it takes a long time – years to get perfection in analyzing the market. Besides commercial banks, central banks also take part in forex markets. According to the country’s law, they’re vested with taking care of the whole forex market in the economy they represent.

A large volume of forex

The most important factors that influence trade are two. First, you must have a ground understanding of how the fundamental analysis works. Second, you must also thoroughly grasp how the data releases influence the market.
The second aspect is how you should act (execute) without being influenced by any external factor and solely with market data with razor-sharp precision. The economic data that come out are the most influential in forex markets.

Based on economic data, central banks formulate their monetary and credit policies to accommodate their economy. Thus, if you abide by the data releases and start treading accordingly, you can understand what will happen to the central bank’s forex policy and build your capital base.

How does the actual trade go on?

Many traders at various banks keep moving around the room to witness the deals and keep moving to the other traders. Alternatively, they take a short break and go out with the brokers. As a result, they are never at the computer for over a few hours. We advise you to take a similar approach. You can move forward if you comprehend the markets’ fundamental and technical aspects and have a complete professional capital management system.

How can traders trade like the big banks?

To trade like the big banks, you need to be ready to hold a position for several weeks or months as a position trader, analyze macroeconomic data, and monitor critical price levels in the trend distribution phase.

Once you are clear with capital management, market fundamentals, and the like, you need to understand simple strategies to apply your knowledge.

Conclusion

According to current market definitions, the smart money is the actual source or the cash invested by experienced investors, with the collective force of a certain amount of money that can change market patterns. In this case, the central bank is behind the smart money, while the rest respond to any market trend.
So we can start trading like banks, to think long term.

Talking about banks as one of the main aspects of the smart money that controls most daily market volumes, other subsidiary banks act as the market makers for several traders, including some mentioned above. Of course, the banks play a significant role in controlling the daily volume, but many traders trade daily, and they are the basis of daily market making but not speculations. This strategic-based information is provided to educate traders on important tips in smart trading. It also helps teach banks the role of primary market makers and direct traders in learning from existing market trends without complicating trading strategies.

This is the process of finding out the strategies prominent market participants use, especially by devising trading setups designed to find likely areas of demand and supply. This process is sometimes referred to as manipulative points.
It may be easy for a retailer to find the likely point where smart money traders buy and sell. Still, difficulty arises due to the issues about the financing capability to drive market forces. The central banks continuously track the paths to which smart money is waving since they are among the able market participants. The latter can successfully drive the market forces and alter smart money operations by introducing certain trading decisions.

The only option for retail traders dealing with forex trade is to follow the market trends and the rules set by prominent market participants to achieve consistent results rather than introducing their rules in the market and losing their chances of success.

There are no shortcuts or gimmicks to help you in the forex trade. No system of indicators exists similar to the market. You must understand how the leading bankers in trade look into the market. You will succeed in the forex trade if you gain in these aspects.

The break-even point in business is the point at which total cost and revenue are equal, in other words, “even.” To calculate the break-even point in business, you must divide your total fixed costs by the difference between the unit price and variable costs per unit.

But, in trading, we have a break-even term too.

What is Break-Even in Forex?

Break-even in forex means that your trading position neither makes nor loses money. So, for example, if you buy EURUSD at a 1.3120 price level and then a close position at a 1.3120 price level with zero profit and zero dollars loss, you are break-even.

Usually, break-even in trading works when you move from your first stop position into your original entry position once the price has moved in your favor.

Break-even example in forex trading (without spread calculation):

• You buy EURUSD at 1.3120
• The price goes to the 1.32 level.
• You set a stop loss at 1.3120 (break-even level).
• If the price falls to 1.3120, you will have zero profit and loss and break even.

The percentage for break-even while trading is a valuable statistic because it shows how often the trader has to win to break even. This will help in decision-making. He will use different stop losses to manage the risk and set targets for the rewards he wishes to achieve. For a break, even the trader does not make money and does not lose money, though he is investing his time. The trader makes a profit if the number of trades won exceeds the break-even percentage. The trader would lose money if the percentage of trades won is lower than the break-even calculated.

How to set break-even in forex?

To set a break-even point in forex trading, you need to determine the price level at which you will exit the trade without incurring any loss. Here’s a step-by-step guide on how to do it:

• Determine your entry price: This is when you bought the currency pair.
• Determine your stop-loss price: This is the price at which you will exit the trade if the market moves against you. You should set your stop-loss order at a level that limits your potential loss to an amount you are comfortable with.
• Calculate your pip value: This is the value of each pip movement in the currency pair. You can use an online pip calculator to determine this.
• Determine your trade size: This is the number of units of the currency pair you will trade.
• Calculate your break-even price: To calculate your break-even price, you must add your trade’s spread to your entry price. For example, if the spread is two pips and your entry price is 1.1200, your break-even price would be 1.1202. If the price moves to 1.1202, you will have covered your spread costs and break even on the trade.
• Adjust your stop-loss: Once the price moves in your favor, you can adjust your stop-loss to your break-even point. This will help you lock in your profits and reduce your risk.

Remember that setting a break-even point is just one aspect of successful forex trading. You should also have a solid trading strategy, manage your risk effectively, and have a disciplined approach to trading.

Break-even percentage calculation

To calculate the break-even percentage in forex trading, you need to divide stop loss and  stop loss and target price sum like in the following formula:

Breakeven= (Stop-loss/(Target + Stop-loss)) X 100

The settings for stop-loss and target defined by the trader are considered to calculate the break-even percentage for a particular trading strategy. Different parameters are used for measuring the target, and stop-loss, like ticks for futures trading, cents for stocks, and pips for forex trading. In other cases, the amount of money is used for specifying stop loss and target profit. The calculation shows the number of winning trades for break-even in percentage terms.

Many traders do not use the same target or stop-loss for each trade. In these cases, the average profit or win and average loss for the different trades are considered for calculations. Thus, the average stop-loss is the average loss, while the average profit becomes the average target. The estimate for the break-even percentage is provided below.

What does break-even mean in options? 

In options trading, the break-even price can be Call Break-even or Put Break-even as the price at which investors can choose to exercise or dispose of the contract without incurring a loss. In the case when a trader buys an option, the call position you own can be profitable at expiration, If remains above the strike price plus your initial investment:

Call Break-even = Call Strike Price + Call Purchase Premium
In the case when a trader sells an option, “Put position,” you can be profitable at expiration if it remains below the strike price minus your initial investment:
Put Break-even = Put Strike Price – Put Purchase Premium

Break-even options trading example:
For example, if you have a call option with a strike price of $40, your cost per option share is $1.50. Therefore, adding $1.50 to $40 tells you that your break-even price is $41.50.
For example, if you have a put option with a strike price of $40, your cost per option share is $1.50. Then, subtracting $1.50 from $40 tell you your break-even price is $38.50.

Application of the break-even percentage

The break-even percentage determines whether the trading strategy formulated will provide sufficient winning trades. The trader makes a profit, using different settings for stop-loss and targets. It will help if the trader is using a new trading strategy; it will help determine the number of trades required to profit when the stop-loss and target settings are optimized.

The trader winning a more significant percentage of trades than the break-even will profit, while a trader losing a more substantial number of trades compared to break-even will make a loss.

The win rate and risk/reward ratio are calculations related to the trade. The risk/reward compares the risk for each trade with the reward targetted. The win rate calculates the number of trades the trader wins, expressed in percentage terms. These calculations and statistics can complement the trader’s break-even calculation to decide and formulate the right strategy.

Setting the right target.

Traders should know that setting targets that cannot produce break-even percentages is misleading because they are unrealistic. For example, a trader may feel tempted to set the target significantly higher than the stop-loss, thinking he will require only a few winning trades to break even under these conditions. Yet, the trader is unaware of the reality of achieving challenging targets.

If the target is exceptionally high, the trader will never achieve it since the prices or value of the security will not increase greatly in most cases. In other cases, there will be very few winning trades for high targets, so the trader will lose money since the percentage of losing trades will be higher.

So while developing a trading strategy or system, the trader should first determine the target profit and realistic stop-loss levels, easily achieved, and then calculate the break-even levels.

Though most beginners are happy to break even when they start trading, traders should know that their goal is to make a reasonable profit since they are spending time and taking the risk of investing their money. At the same time could be utilized elsewhere to make some money with far lower risk. Hence the trader should aspire to win more trades than the break-even he has calculated. Thus, the trader’s first target has to achieve while perfecting his trading strategy is not the ultimate goal for profitable trading.

Forex trading is buying and selling currencies on the foreign exchange market. The goal of forex trading is to make money off of the changing values of currencies.

The foreign exchange market is a decentralized global market for the trading of currencies. This means forex trading occurs between two parties over the internet rather than in a physical location. The forex market is open 24 hours a day, five days a week.

What is Forex Trader?

A forex trader represents a person who buys and sells currencies on the foreign exchange market intending to make a profit. Forex trading activity is speculating on the price movement of currency pairs.

In my opinion, a forex trader is not just a professional who works in a trading company and makes profit trading currencies. Forex traders can be any person who individually trades using a personal trading account at a brokerage company. Therefore, for forex trading, we should analyze from two points of view – the professional business side and the retail trading side (individual accounts).

Please see my video related to this question:

Let us analyze basic terms:

Currencies are traded on the forex market through currency pairs. A currency pair is made up of two currencies, representing one currency’s value in terms of the other. For example, the EUR/USD currency pair represents the value of 1 Euro in terms of US dollars.

When you trade on the forex market, you are essentially betting on the direction a particular currency pair will take. If you think the EUR/USD currency pair’s value will increase, you will buy it. If you think it will go down, then you will sell it.

Forex trading can be highly lucrative but comes with a high degree of risk. This is because the value of currencies can fluctuate rapidly and unexpectedly. It is essential to always be aware of these risks before investing any money in forex trading.

Recently we wrote an article about how many forex traders are in the world, and you can check the stats in our article.

Forex traders’ responsibilities

The responsibilities of a forex trader include:

• Monitoring financial news and economic data: Forex traders must stay informed about economic and political events that may impact currency exchange rates.
• Analyzing market trends: Forex traders use technical and fundamental analysis to identify trends and make informed trading decisions.
• Making trading decisions: Based on market analysis, forex traders decide when to enter or exit a trade to maximize their profits.
• Managing risk: Forex traders must be able to manage their risk by setting stop-loss orders and properly sizing their trades.
• Keeping a trading journal: Forex traders should keep a record of their trades to analyze their performance and identify areas for improvement.
• Continuously learning: Forex trading is a dynamic field, and traders must constantly learn about new trading strategies and stay up-to-date with market developments.

A forex trader is responsible for several things to be successful. First and foremost, they must stay informed about economic and political events that could impact currency exchange rates. They do this by monitoring financial news and reading economic data. In addition, forex traders must be able to analyze market trends to identify opportunities and make informed trading decisions.

This requires both technical and fundamental analysis. Once a forex trader has identified a potential trade, they must decide when to enter or exit the trade to maximize their profits. This can be a complicated decision, as it involves managing risk. Forex traders must carefully set stop-loss orders and size their trades properly to minimize risk. Finally, forex traders should keep a journal of their trades to track their performance and identify areas for improvement.

I suggest you read our article to learn more about is forex trading is profitable!

Forex traders’ skills

Here is a list of skills that a successful forex trader should possess:

• Strong analytical skills: Forex traders must be able to analyze market data, identify trends and make informed trading decisions.
• Risk management: Forex traders must be able to assess and manage risk effectively.
• Discipline: Forex trading requires following a trading plan and sticking to rules.
• Patience: Forex traders must be patient and not make impulsive decisions based on emotions.
• Technical analysis: Forex traders must proficiently use technical analysis tools to identify market trends.
• Fundamental analysis: Forex traders must understand economic and political events that can impact currency exchange rates.
• Adaptability: Forex trading is a dynamic field, and traders must be able to adapt to changing market conditions.
• Attention to detail: Forex traders must be detail-oriented and accurately track their trades and performance.
• Strong communication skills: Forex traders must communicate their thoughts and ideas verbally and in writing.
• Continuous learning: Forex traders must learn about new trading strategies and stay up-to-date with market developments.

Forex trading requires discipline, patience, and a solid understanding of the markets. It can be a rewarding and lucrative career, but it also comes with significant risks, so traders must have a well-thought-out trading plan and manage their risk effectively.

In the first step, we will see Forex and binary trading in this article and then know the difference between Forex and binary trading. My opinion on the question “Which is better, forex or binary options” is that Forex is better for trading than binary options because of the better winning rate, profitability, risk, and reward ratio. So the answer is: Forex is better than binary options, and I will represent this opinion in my case study.

Binary options vs. Forex

The main differences between Forex and binary options are:

• First, Forex is a natural trading asset; binary options are fictive assets.
•  Second, Forex can be traded with no profit or loss limit; binary options trading is limited by time.
• Third, Forex offers leverage; binary options do not.
• Finally, Forex trade duration can be unlimited; binary options have an expiring time.

Nevertheless, if you cannot predict correctly, you’ll lose the entire amount of investment made by you initially. Furthermore, this type of trading will not come with any variability, given that you will only be able to decide whether the value of an asset will increase or decrease and not precisely by how much.

• Profits and losses will be established upfront
• The time for expiry of any trade can be selected upfront
• It is possible to trade Binary options only during the regular hours of trading
• There is no possibility of any leverage
• One will gain access to various types of Binary options for trading across several industries

To sum up:

Binary options trading:

• It involves making predictions about the price movements of underlying assets
• Trades are executed quickly and have a fixed payout structure
• It can be easier to understand and trade than Forex
• Often requires lower capital investment than Forex
• Binary options trading offers fixed risks and fixed rewards.
• High potential returns, but more than 95% of traders lose money.
• Limited trading options, as binary options typically only offer call/put or up/down options
• Often associated with high levels of risk and fraud, particularly in the unregulated market

Forex trading:

• Involves buying and selling currencies on the foreign exchange market
• Trades can be executed quickly but with potentially unlimited profit or loss
• It can be more complex and require a higher level of skill and experience than binary options trading
• Often requires more increased capital investment than binary options
• Higher potential for profit, but also a higher potential for loss
• Wide range of trading options, including spot trades, futures, options, and derivatives
• High liquidity, with the forex market being the largest financial market in the world
• Associated with risks such as currency volatility, leverage, and geopolitical events.

Which is better, Forex or binary options?

Based on cary study, forex trading is better than binary options because it provides average higher returns and smaller drawdowns. Thus, forex trading is more profitable than binary options.

Forex trading involves buying and selling currencies on the foreign exchange market to profit from changes in currency exchange rates. Forex traders use a variety of strategies, such as technical analysis, fundamental analysis, and risk management techniques, to try to identify profitable trades. The potential profitability of forex trading depends on a range of factors, including market conditions, trading strategies, and the trader’s skill level and experience.

On the other hand, binary options trading involves making predictions about the price movements of underlying assets, such as currencies, stocks, or commodities. Binary options traders can choose from a range of trading strategies, such as the popular call/put or up/down options, with payouts determined by the broker at the time of trade execution. The potential profitability of binary options trading depends on the trader’s predictions’ accuracy and the broker’s payout structure.

In general, forex trading is considered to be a more complex and sophisticated form of investment than binary options trading. As a result,  Forex traders may have more control over their trades and can use various tools and strategies to improve their profitability. However, forex trading also involves higher levels of risk, as currency exchange rates can be highly volatile and subject to sudden shifts based on global events.

Binary options trading, by contrast, is often viewed as a more straightforward and accessible form of investment, with lower capital requirements and less complicated trading strategies. However, binary options trading also carries higher levels of risk, as the fixed payout structure means that traders can lose their entire investment if their predictions are incorrect.

Overall, the profitability of forex trading and binary options trading will depend on various factors, including the individual trader’s skills, experience, risk tolerance, market conditions, and other external factors. Therefore, it’s essential for investors to carefully consider their investment goals and risk appetite before deciding which investment vehicle is right for them.

Everything You Wanted To Know About Binary Options vs. Forex Trading

Binary options trading has witnessed significant growth during the past several years; however, it does not imply that it will be an excellent investment for everybody. While both Forex and binary options trading will provide significant revenues, they are not the same by any means and might not even serve the same purpose. This article will determine which of these two suits your requirements. Therefore, let us not waste time and delve deeper into this article regarding Binary Options vs. Forex Trading.

Binary Options:
By the term Binary options, we refer to option contracts with fixed rewards and fixed risks. In binary options trading, the trader must decide whether any underlying asset, such as an item, a currency, or a stock, can go up or down during a fixed period. If the traders can predict correctly, they will be shown the valuation of their earnings upfront.
While trading binary options, you will invest in an asset like a stock, a commodity, or a currency that will increase or decrease its value over a specific period. The trader will be depicted as the value they generate upfront. Thus, you’ll understand precisely how much profit you can make on the investment if your prediction is correct while making the trade.

Are binary options the same as Forex?

Binary options are not the same as Forex because binary options are not tangible financial assets such as Forex, bonds, stocks, commodities, futures, etc. Instead, it is used in theoretical asset pricing. In addition, binary options are prone to application fraud and hence are banned by regulators in many jurisdictions as a form of gambling.

 

Case Study – Which is Better, Forex or Binary Options?

In this case study, we picked three trend trading strategies Expert Advisors based on H1, H4, and daily chart, and three swing strategies based on H1, H4, and Daily chart. In addition, we tested EURUSD, GBPUSD, USDJPY, and USDCAD. In this way, we had the same bullish and bearish trades (EURUSd and GBPUSD are against USD, and USDJPY and USDCAD are on the USD side, so it is suitable for testing).
After that, we set Expert Advisors to close trades based on time duration (1,2,6,12,24 hours ) based on strategy and using spreads; we set fixed risk contracts for binary options—average trade time for Forex for binary options similar.

This methodology is not perfect,t it can give you insight into how an excellent risk-reward ratio can make profits grow better than binary options betting. Volatility is the forex trading friend, and volatility doesn’t impact binary options.

Difference between Forex and binary trading

• Accessibility To The Market

The forex trading marketplace will be open around the clock, five days a week. Forex trading allows traders to react quickly to international news and events compared to other markets. Even though most traders do not prefer weekend trading, it stays open with restricted functionality.

Binary options will be traded when the marketplace of any underlying asset is open. This implies that it will operate only during regular trading hours. Nevertheless, it is possible to make trades on currency pairs. Making trades 24 hours a day, five days a week will be possible on such occasions.

One can gain access to both these opportunities on trading platforms online.

• Duration Of Trade

The expiry time for the binary options trade can vary from 1 minute to 60 minutes. You’ll come across some brokers who enable the traders to leave the trade at a lower return before an agreement has been made. One can likewise extend binary options trade to attain better returns. However, it will be crucial to note that all brokers will not offer these options.

• You will control your trade-in in the forex trading marketplace while you can exit at your preferred time. That being said, going any open trade on the weekends will not be possible since the market will remain closed at that time.
  
  Diversity

Binary options trading will offer a vast range of marketplaces, including commodities, stocks, and currencies. On the contrary, the forex market will provide a much smaller selection of trades. Even though forex trading will happen in only the major currency pairs, more pairs will also be available.

• Reward And Risks:

It is quite lucrative to trade in binary options, given that you already comprehend how much profit or loss you will make before entering the trade. However, the possible gains will typically be lower than any successful forex trade. While competent forex traders can expect profits of as much as 200% or even higher, the earnings of binary options will vary from somewhere between 50% and 80% of the initial investment.

The forex trading markets are offering much more variability and risks at present. Apart from figuring out the direction in which a particular currency will move, it will also be possible for the traders to ascertain the extent to which it will go. Traders can endorse a stop-loss order, which will help prevent them from losing more than a specified percentage of the initial investment.

• More Variability, More Risk

FX markets presently offer higher variability and enhanced risks for the traders out there. This is because the traders must decide not just the direction in which an asset will move in the forex markets (also referred to as currency markets or FX markets) but, likewise, guess how low or high the asset moves. In this way, we are yet to be aware of the ultimate risk and profit.

There is no limit to the amount of money generated or lost by the trader in Forex unless they use specific tools to control trading out there. A stop-loss is one such tool that will prevent traders from losing more than a particular amount. Put, the trade will close automatically if the trader out there has lost a specific amount. Similarly, fixing the potential reward in advance might also be possible. The trader can decide that he would like to close the trade as soon as he has reached a particular profit value.

The optimum loss for FX can be the total cash on your trading account. Therefore, managing both profits and losses with FX limit/stop orders is feasible.

• Timelines

Binary trades at present use different timelines. Once a trade commences, the trader won’t control when that trade starts or ends. Before a binary options trade begins, the users must choose when the order expires. There is a starting time as well as an end time for each option.

The trade ends automatically at the time of expiry. Although you will be allowed by a few brokers to quit early, you will lose your option at a certain percentage of the predicted return. Unfortunately, this option is not offered by all the brokers out there.

Similarly, several brokers enable the traders to extend the expiration period to the subsequent expiration period. It’s known as “rollover,” It is feasible only if traders increase their investment by a certain proportion.

In FX trading, users might take trades that can last from only 1 second to several months, given that they feel like they can open and shut the business. There are both benefits and drawbacks when it comes to this flexibility.

• Margins

Forex has a tool known as margins, too. Each broker calculates the highest margin. The margins will permit the traders to enhance the capital they have invested such that it will be feasible for them to make a more significant profit if the trade happens to be a winning one. Margin is not a binary options tool whatsoever.

You can trade five types of binary options right now. These happen to be 60 seconds options, high/low, boundary options, touch/no-touch options, and option builders. In Forex, you will come across different types of orders. The essential type happens to be the buy/sell type. Nevertheless, you will find better types, including OCTO (one cancels the other), limit, stop, trailing stop, and hedge orders, apart from others.

Forex trading is entirely dissimilar to binary trading, and one should have adequate knowledge of Forex vs. binary options to become a successful trader.

• Volatility

Binary options won’t be affected by volatility by any means. The option will reach the expiry time provided you have made the correct prediction and your investment won’t be affected by surprise volatility.

On the contrary, surprise volatility can significantly affect forex trading, usually brought on by news events. As a result, it will be vital to set up adequate procedures for managing risks while doing forex trading.

Final Verdict

Whether you want to go for binary options or forex trading depends entirely on your investment objectives and how much risk you can afford to take. Binary options will be better if a trader does not like to take much trouble. On the other hand, although forex trading can offer higher returns, it is more complicated and risky than binary options. However, forex trading can be profitable with plenty of practice and a bit of luck.