Yesterday I started answering a LinkedIn question post about trading for a living. I mentioned then that there were several ignorant statements being made. Here are some of them.
The secret is do not do it. The reason is because with internet trading you are ALWAYS giving up the “edge” when you trade. That is because the market THEY provide you with is fiction, based on a spread that always makes them money. That, in addition to other fees is how they make money. That is how every online “brokerage” FX firm seems to work. What that means to you is that every trade you make, you start out as a LOSER. You then have to gain back your loss then make money on the trade, only to lose again when you sell because of the market THEY provide.
Who exactly are “THEY”? Is he talking about the brokers? Does he somehow believe that the forex market operates differently than other markets? The line about starting off each trade as a loser suggests as much. That is a function of the bid-ask spread, a spread which existings in EVERY market, not just forex. Market makers always have AN edge, though not THE edge. There’s more than one.
95% of all Forex Traders will take their account to zero.
This is one of those stats that people throw out there with no actual figures to support their argument. Yes, the majority of new traders close out there accounts and give it up. Since it’s nearly impossible to actually get your forex account balance to zero, the idea that 95% of folks are doing that is just plain wrong.
I have a friend who was all excited about it and started doing it for a while. He gave up really quick. Could be because he saw the high degree of risks around it, or the fact that he had to work at night, or the limited resources in terms of information he had, or the unpredictable nature of the FX markets…or all of the above.
I’m not saying is undoable, but it’s like day trading; unless you’re a professional handling millions of dollars, the statistics are against you and you’ll be better off with long-term investing.
The idea that pros handling large funds are the only ones who can make money in the markets is so far off as to be laughable. Those running big funds have major limitations to what they can do and how they can do it. Smaller traders, who can be more nimble, often have significant advantages.
I am absolutely not one to be saying trading profitably and making loads of money in the markets is easy. It’s not (See Good Trading Doesn’t Happen Overnight). At the same time, though, I do believe that folks who spend the time working on it and don’t expect overnight success can do good things in the markets.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
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