Get me off this island!

Beginner Questions
1

Hey everyone,

I figured I would muster some hubris, enough to make an introductory post about myself with a few noob questions. I expect a few of them have been answered before, I apologize but the forums are large enough to take a long time to search for the exact answers. I will happily accept responses such as “use the search box”.

I often see people/experts call this market “zero sum.” I understand the concept, yet at the same time every time I open a trade in my demo account I am immediately negative, thanks to the spread. Is it so negligible as to not need to be accounted for? For example a 20 pip gain netting $10 a pip would make a nice sum of $200, yet you would have paid a 15% “commission”. If I could make $200 a day/trade to start my FX career, I would be quite pleased! We know the market often moves more than that, yet over slightly longer periods. Still, a 100 pip move would mean the spread cost is 3%. More acceptable, but considering investing the same amount of $ in a stock trade (100K EUR/USD FX lot putting $3000 down) is $9.99 commission for a $3000 trade= 0.3%. If anyone has suggestions on how different traders deal with the spread; scalpers, daytraders, month+ position holders, etc I would be very interested in this. Every pip counts right!

A reason I am investigating and attempting to learn about FX, is that it is of course open to the everyman, and I am confident in my intellectual abilities. Though no Harvard grad here, I generally am considered bright by the biased people around me (family, friends, etc LOL). What I mean is that I have read some very intelligent posts on this site and others, from what seem to be master contributors. I have also read posts that reek of those with stars in their eyes who no doubt fall in to a new fail safe money making scheme every year, this year it must be FOREX. Based on ratios of the two types of posters, there is a lot of free money floating in the “zero sum” game! I believe that with time, passion, and study, I have the potential to be on the positive side of the 50%. This of course could be a dead end assumption, as the get rich quick-ers no doubt have limited capital, and 20 of them may not match one professional expert or bank in the market. They say that the FX market is something like $4 Trillion a day but only 1.5 or so Trillion is spot or folks like us. That other 2.5T still affects the market prices correct? Silly Q likely, but it seems that things could be difficult trying to compete against Deutsche Bank et al.

The question here would be, really is it worth it? REALLY? Perhaps a degree in Econ and Statistical Analysis would get me a job with a large institution, and reward with a comfortable paycheck and stability. Is the playing field level? Information in today’s age is crucial, and many people 2 decades ago thought things like chart trending was getting so crowded that you didn’t get an edge like before. With so many people subscribing to DailyFX, or Bloomberg or any services, or even reading the same news, can you expect to gain by piggybacking on expert setups? I don’t mean to be a naysayer at all, looking for a solid explanation to such thoughts (liquidity may be one).

I have other questions, but for now I will continue to read what I can. I hope my first post here had some encouraging questions that lead some people to feel I am worthy of the effort of an answer.

Thank you, and I really love the ease of this site and it’s explanations. Greetings to all, Eric

2

Some thoughts for you.

  1. Being bright is more often a drawback, than a benefit. Being observant is a far more useful tool.

  2. Don’t try to compete with Deutche bank. As a retail trader, you’re not even on their radar, neither should they be on yours. Instead, try to spot the big footprints large institutions leave, and piggyback along with them.

  3. Don’t read too much into the news. Forex often moves counter to what conventional wisdom would have it. Trying to decipher moves based on after the fact information is a rough road.

Cheers!

3

Hello, Eric. Welcome to this Forum.

To piggyback on Tang’s excellent reply…

Some [I]additional[/I] thoughts for you.

[B]4)[/B] Obviously, spreads are a fact of life in forex, and they figure into this “zero sum” game that we play.

Every time you win (profit) in this market, a portion of your profit is skimmed by your broker in the form of a spread. And the unidentified loser out there who had “the other side of your trade” lost exactly the same amount as your net profit, plus the spread that he paid to his broker.

Zero sum. With spreads at both ends.

And, clearly, spreads are a significant cost of doing business for a 10-pip scalper, and are negligible for a 1,000-pip position trader. For all other traders, spreads matter more or less, depending on where they are on the trading-style spectrum.

[B]5)[/B] You asked: “The question here would be, really is it worth it? REALLY?” Depends on what the first “it” is, and what the second “it” is. (Does that sound like Bill Clinton speaking, or what? But, I digress.)

Is “what” worth “what”?

Is training yourself to be able to grow an account by double-digit percentages every month [I]worth[/I] months, or even years, of study, practice, failure, starting over, dogged determination, and maniacal persistence? In your case, maybe not.

It’s easy to [I]measure[/I] financial success — it measures itself, in dollars of income, profit, or gain. But, how do you [I]value[/I] financial success? Where does [I]money[/I] rank on your personal list of the important things in life? How much time, effort and mental anguish are you willing to trade for how much money?

And just as important, assuming that you can train yourself to make consistent profits trading forex, would you enjoy making your living this way?

There is no long-term future in making money, even a lot of money, doing something that you hate, or something that stresses you to the point of failed health, or something that conflicts with your sense of ethics or morality, or something which consumes too much of your time and attention.

In the end, it all comes down to a simple benefit/cost calculus. Is the benefit worth the cost?

In your case, only you can answer that.