Quality education is critical for successful trading. Trading involves making decisions based on a variety of information. And without a strong foundation and knowledge, making mistakes is almost unavoidable. Trading process itself should be easy, however, the main work is in preparation. Successful traders plan their trades and trade their plans. To be able to make solid plans, education is the key.
It is clear that better trading through education is key to success. Here are some more reasons why education is important in financial trading:
- Understanding financial markets: education helps traders understand how financial systems work. And therefore educated traders are less likely to fall for money traps. In addition, decision making becomes easier.
- Education helps manage risks better: proper risk management might seem simple at first glance, but it’s a bit more complicated. It’s important to understand probabilities as consistency and profitability in the financial world comes with a trading edge. Having a trading edge simply means using a trading system that generates income over a large amount of trades. Nobody knows for certain how a particular trade can turn out, however, when risk management and trading edge is in place, successful trading is inevitable.
- Helps conduct better technical analysis: with proper education it’s easier to make market research and find the best trading setups. Technical analysis is widely used by traders as it helps predict future prices based on historical chart data. There are purely technical traders and traders that use both technical and fundamental analysis for price predictions. Typically, purely technical traders avoid placing orders during or before major news announcements. Learning about how to conduct a proper technical analysis can help you not only for placing orders on your account, but also for becoming a signal provider. There are many analyst job opportunities out there for technical analysts.
- Helps with better fundamental analysis: fundamental traders study economic and political events to predict market moves. This knowledge is critical in making informed trading decisions.
- Learning about psychology of trading: education helps understand the psychology of trading. Traders are often influenced by human emotions, such as: greed, fear of making a trade, need to revenge trade after a losing trade, and hope for trade to be successful. These emotions can lead to massive losses.
The importance of continued education in trading
Continued education is crucial for traders who want to stay ahead in the ever-changing world of finance. Here are some reasons why continued education is critical in trading:
- To keep up with market evolution: The financial market is constantly changing. The New York Stock Exchange (NYSE) was founded in 1792. Traders were physically present on the trading floor trading stocks, commodities and bonds. With technological advances, trading became more accessible for regular people. In the modern world trading can be done from anywhere in the world where there’s electricity and internet connection. This transition has made lots of traders quit their profession. Nowadays, trading is becoming increasingly competitive and more and more trading robots and artificial intelligence are participating in the markets. Continued education is crucial to stay competitive.
- Learn new strategies: continued education allows you to find and develop new trading strategies. Each asset class moves differently and strategies that work for EUR/USD, will likely fail to work on USD/JPY, and vice versa. In addition, strategies get dull overtime, and stop generating results. It’s critical to keep up with changing market conditions by developing new strategies.
- Continued education helps traders to socialize. Retail trading can be a very lonely job, especially for traders that place orders from their bedroom. Trading is the perfect endeavor for introverts, however, it can easily isolate individuals from the world. There are many webinars, seminars and classes that connect traders around the world.
- Develop new skills: continued education helps traders to grow personally. For example, learning how to code can help traders automate their trading. While learning how to analyze financial information will improve fundamental analysis.
- Adapt to changes in regulations: continued education helps traders to keep up with changing laws and regulations.
It should be mentioned that having a quality financial education when trading is essential, however, not enough for profitable trading. Discipline also plays an important role in consistency and profitability. For instance, we all know that exercising and healthy eating can result in better physical health, but not everyone has discipline to follow their plans. The same is true in financial trading.
Financial trading in Nigeria
Financial trading in Nigeria is one of the critical sectors of the economy, contributing to its Growth Domestic Product (GDP) significantly. Nigeria is the biggest economy in Africa, and its financial market is one of the most developed on the continent.
- Nigerian Stock Market: The Nigerian Stock Exchange (NSE) is the principal securities exchange of Nigeria. The NSE has been operating since 1960. On the exchange, traders have access to trading equities, bonds, and exchange traded funds (ETFs). The NSE is regulated by the Securities and Exchange Commission (SEC) of Nigeria, which ensures compliance with local laws and regulations.
- Currency market: The Nigerian currency market is supervised and regulated by the Central Bank of Nigeria (CBN), which sets monetary policies and regulations for the FX market. In addition, CBN also manages the Nigerian Inter-Bank Settlement System (NIBSS). NIBSS facilitates electronic transfers between banks in Nigeria.
- Commodity trading: Commodities are raw materials that later turn into consumer goods. There are hard (precious metals, energies) and soft (commodities that can be farmed) commodities. Nigeria produces large amounts of commodities such as crude oil, cocoa, and rubber. Commodity trading in Nigeria is regulated by the Commodities Trading and Exchange Division of the SEC.
- Derivatives trading: The Nigerian Derivatives market is still in its early stages of development, however, the sector is expected to grow significantly in the coming years. The SEC of Nigeria has issued regulations and guidelines for the trading of derivatives, such as futures and options.
Dangers of trading without having a proper financial education
Trading without a proper financial education can be extremely risky and result in huge financial losses. Here are some of the dangers of trading without a proper financial education.
- Lack of knowledge leads to gambling: trading is complex. Trading without understanding how markets work and how to implement profitable trading strategies will inevitably lead to losses.
- Using high-risk strategies: in financial markets risks and rewards are positively correlated. The higher the risks, the higher the rewards. However, using such strategies damage consistency and many accounts get blown up. Traders that wish to remain in the business for a long time, need to learn how to manage their risks well. Consistency and profitability is more important for investors in the world of finance than extraordinary profits.
- Emotionally driven decision making: traders are influenced by fear, greed, revenge trading and other emotions. Human emotions may lead to losing an entire trading capital in a single day. To avoid revenge trading, many professional traders use trading stop limits. For instance, if a trader loses 100 USD, he or she might stop trading that day to avoid revenge trading.
- Scams and frauds: where there is money, scammers can be found nearby. Avoid individuals that are offering high risk strategies and ways to get rich overnight. Getting rich quickly in the financial market is possible using compounding and managing other people’s money. Compounding involves reinvesting returns to your trading account and increasing profits while risks stay the same in terms of percentage points. And in order to be able to manage other people’s money, consistency and profitability is essential.
Key takeaways
To sum everything up, education is key to consistent and successful trading. Traders need to learn how to conduct technical, fundamental analysis, learn how to manage their risks and develop trading plans before placing orders live. However, for success in the financial market it’s essential to keep learning and improving. Market conditions are changing all the time and strategies and tactics that have worked in the past stop bringing profits. There are various reasons why it’s important to keep educating yourself. For instance, continued education helps to stay ahead of the competition, socialize with other traders and keep up with changing markets. Nigeria is the largest economy in Africa and financial trading is an important part of the country’s economy. It’s important to take into account some of the challenges and dangers that come with trading. Stay away from scams and frauds, always use proper risk management when trading, control your emotions and remain disciplined, and keep developing as a trader.