As a guy that’s been around for many years as trader, system developer, signal provider, money manager & trading instructor, I want to contribute with a few insights into a few of the commonly believed “myths” of the FOREX market, that rookies tend to take for granted (to their own peril). Guys, if you are at the beginning & still full of optimism & confidence in everything you hear, please read these few lines, they may save you lots of wasted time & money.
I will post these myths as a series, one at a time.
[B]Myth nr.1:[/B] FOREX is a zero-sum game, whatever a trader makes, some other trader loses.
[B]Truth:[/B] FOREX could only be a zero-sum game if there were no trading costs, no slippages & no scams to trim your account’s equity continuously. Unfortunately, that’s not the case.
[B]Even before the first tick of a trade, you are already on negative[/B] - because before you make a single cent you first have to recover your broker’s spread or commission. Which means that in order to pocket $10 you most likely have to actually make, say, $11 in the market.
It may sound like peanuts to you, but that’s a 10% loss on your [B]actual[/B] profit, a loss that you have to take [B]for each & every trade you take, winner or loser[/B]. Sure, it’s the cost of doing business & it must be accepted - but never think that these small amounts are meaningless. Why? Because they have one major problem: they are ALWAYS against you & NEVER in your favor. It’s not “we win some, we lose some”, these are losses & losses only. The spreads & commissions are cut from your account with surgical precision [B]regardless of your trading results[/B]! When you make $10 paying $1 in spread is nothing, but when you lose $5 it may not sound as great to still have to pay an additional $1 to the broker!
Add to that other common broker problems like platform freezing, requotes, slippage, etc + the commissions of the “hienas” (all those who under a number of pretexts pretend to “show you the way” for a small fee) & you get a more accurate picture of a market’s that from your standpoint is FAR from being zero-sum.
[B]SOLUTIONS:[/B]
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you won’t be able to trade with zero fees. Don’t even try to find such a broker, because if you do it’s most likely a scammer. Instead, choose a broker with low spreads. Not at all cost (don’t let this be the only reason why you chose the broker!), but definitely put this condition at the top of your list.
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use a “cash back” service, a 3rd party that will pay you commissions for each trade you take with certain brokers. I’d put up a link or two but I don’t want to advertise for anyone, so do your own research. These guys are being paid by brokers to bring them business, and they are paid handsomely too. So what they do is offer some of their commissions to you, in exchange of becoming one of their “introduced” clients. Both you & the cash back service have a lot to win & nothing to lose, everything is at the expense of the brokers, which is exactly what you want:32:.
Please don’t worry about the poor broker who have to take out of their pocket an extra 2 points per trade! They are fat & happy as it is & you won’t take them out of business!
If all retail traders educate themselves & choose the best of the best, the low quality brokers will have no choice but raise the standard of their service or die. We all have to gain from a more competitive broker market & better trading conditions!
- finally: [B]try to trade LESS[/B], because less entries/transactions means less commissions. if given a choice, choose a mid-term strategy where the commission paid is just a small fraction of your average win/loss (in points). Avoid scalping! Like that you don’t have to pay them over & over for thousands of transactions.
If you want to know how much you pay your broker count the number of standard lots you traded since you opened your account & multiply that by $20 (on average):31:. Now look at your realized profit/loss…
If your profit is smaller than theirs, it’s time to make some changes to your strategy or broker and think about improving your chances in the market.
Good luck!:5:
